With no de-escalation in sight, the West Asia conflict poses a serious threat to India’s auto industry, affecting manufacturing supply chains. With the government prioritising domestic energy security, key chemical producers have begun declaring force majeure, disrupting supplies of essential materials used across components, from seats to dashboards and more.

Compounding the disruption is an estimated $1 billion hit to auto component exports, with automakers also bracing for higher freight costs, longer lead times, and a potential decline in volumes. This confluence of supply constraints and export headwinds threatens to unsettle a sector that accounts for nearly half of India’s manufacturing GDP.

Addressing the pressures of the West Asia conflict, Union Minister Piyush Goyal recently said, "There will be a certain shortfall in economic activity in the short run." Goyal, however, expressed confidence that India’s underlying strengths would help offset the impact in the coming months. However, for an industry contributing about 7.1% to GDP, the West Asia conflict remains a key near-term uncertainty.

Export Risks Mount

According to the latest performance review report by the Automotive Component Manufacturers Association (ACMA), exports of auto components in H1 FY26 grew to USD 12.1 billion, 4% of which was accounted to the UAE.

Under normal conditions, nearly all Indian auto component exports to West Asia, North America, and Europe relied on the Suez Canal route with a transit time of approximately 20–25 days.

Due to the West Asia conflict and the subsequent risk of strikes in the Red Sea, vessels are now avoiding these chokepoints entirely. Ships sail south from India and travel around the Cape of Good Hope at the southern tip of Africa before heading towards Europe.

“This extends the transit time by several weeks and (results in) multifold surges in the freight rates. The conflict has effectively frozen a billion-dollar export for Indian auto components to the Middle East, while another close to seven billion dollars to Europe is facing delivery challenges,” Vinnie Mehta, director-general of ACMA, told The Core.

With maritime corridors at risk, Indian carmakers also face a dual challenge of rising input costs at home and a tightening squeeze on one of their most vital overseas markets. Among the automakers expected to be hit include Nissan, Hyundai, Maruti Suzuki, Honda, and Toyota Kirloskar, with Nissan and Hyundai exporting comparatively larger volumes to the region.

Gaurav Vangaal, Associate Director of Light Vehicle Production Forecast at S&P Global Mobility, estimated that India exports approximately 1.6 lakh to 1.7 lakh units annually to the West Asia region, a volume which is now at risk as vessels and containers become stranded in conflict zones.

Beyond volume loss, these disruptions are resulting in higher freight, insurance and working capital costs, along with longer lead times for automakers, further straining a sector already battling commodity price pressures of crude oil.

India’s auto sector entered 2026 with record export momentum in two-wheelers, three-wheelers and commercial vehicles (CVs). Harshvardhan Sharma, Group Head- Automotive Tech & Innovation Group at Nomura warns the timing is critical as the conflict strikes an export engine at its peak.

“Any disruption now directly affects a growing export base rather than a weak one,” he told The Core.

Raw Material Constraints

Amidst the crisis, the government has ordered refineries and oil marketing companies to suspend supplies of crude-based petroleum products to downstream industries and prioritise their use for LPG production. This means crude is being diverted to make cooking gas instead of petrochemicals, which are essential building blocks for plastics, foams, and resins — the very materials needed to manufacture car seats, dashboards, tyres.

As a consequence, Andhra Petrochemicals Limited (APL) on Tuesday suspended operations at its Visakhapatnam plant after HPCL halted the supply of propylene. While APL serves multiple sectors, the shutdown of its oxo-alcohol production creates a direct bottleneck for the automotive industry, as these chemicals are critical for manufacturing plasticisers, high-performance paints, and coatings.

Tamilnadu Petroproducts Limited (TPL) has declared force majeure and suspended operations at its Manali Propylene Oxide (PO) facility. The shift has again cut off the supply of propylene, a critical building block for automotive foams and interiors.

Kirloskar Ferrous, part of the larger Kirloskar Group, which supplies castings to automotive and industrial sectors, also halted a Solapur moulding line due to LPG shortages.

The companies say they are exploring alternative sources of supply or the use of other resources.

There is also a critical squeeze on essential imports of petrochemicals — polyethylene, industrial urea, synthetic rubber, carbon black, aluminium scrap, among other raw materials.

“Given the highly integrated nature of the automotive value chain, even isolated import constraints create a domino effect, which not just impacts individual players, but chokes the entire industry's output,” Mehta said.

Calling the crisis an "early warning signal" for the national economy, Bal Malkit Singh, Advisor and Former President of the All India Motor Transport Congress (AIMTC), stated that the road transport sector is already witnessing a dramatic slowdown. In certain segments, vehicle movement has plunged by up to 50%, with fears that it could collapse by 70–80% if regional instability continues to stifle industrial output.

Prices for essential inputs, including tyres, lubricants, and AdBlue (urea), have surged even as the driver community is facing severe hardship due to the shutdown of highway eateries and a looming risk of mass migration as work opportunities dry up. Singh emphasised that these cascading pressures will inevitably strain MSMEs and escalate the general cost of living for citizens.

Supply Disruptions Deepen

Kotak Institutional Equities suggests India’s pivot to Russian crude provides a cushion for supplies of petrol and diesel.

However, other challenges loom large. Last week, Director General of the Society of Indian Automotive Manufacturers (SIAM), Rajesh Menon, said the industry would keep a close watch on the evolving geopolitical developments.

“While the month of March has festive drivers in several parts of the country, the recent conflict in West Asia remains a concern, both from the perspective of the supply chain, which could impact the manufacturing processes and exports,” he noted.

Almost two weeks ago, the government issued a notification prioritising LPG for domestic household use over commercial enterprises. While the shortage has already forced shutters at restaurants and eateries nationwide, the diversion of industrial gas is now creeping into automotive production lines.

Anurag Singh, advisor at Primus Partners, told The Core that while the immediate blow to vehicle production is less visible than the crisis in the hospitality sector, the "complex auto value chain" remains highly vulnerable. Specifically, vehicle paint shops — a critical stage in manufacturing that relies heavily on gas-fired heating systems — face severe constraints.

Singh added that these limitations on specialised industrial gases are creating invisible bottlenecks that could constrain production cycles if the situation continues.

The primary risk lies in gas-dependent processes—such as foundries, forging, casting, and paint shops—and the MSME supplier ecosystem that lacks the scale to pivot quickly. Consequently, the near-term threat is not an industry-wide halt, but intermittent disruptions and supply chain bottlenecks at specialised facilities that could ripple through the production line.

This comes as India produces only a fraction of the LPG it needs domestically. Around 60% of its demand is met through imports, while about 40% is produced locally. The current supply squeeze follows an effective halt in shipping traffic through the Strait of Hormuz and the Gulf amid the ongoing West Asia conflict.

About 90% of India’s imported LPG passes through the Strait of Hormuz, making supplies vulnerable to disruptions in the region. India also relies on West Asia for 68.4% of its LNG supplies.

Dealers On the Edge

"While customer sentiment isn't alarming yet, a prolonged crisis could severely dent demand for both cars and two-wheelers. As the cost of essentials rises and consumer purchasing power shrinks, people will inevitably defer vehicle purchases to prioritise basic household needs first," a Delhi-based dealer told The Core.

The Federation of Automobile Dealers Associations (FADA) maintains a cautiously optimistic outlook for March. The industry body expects the retail momentum to stay intact, fueled by the year-end buying cycle and a cluster of festivals including Navratri, Ramzan, and Gudi Padwa.

However, dealer confidence has become more measured, with growth expectations dipping to 67.35% as the market normalises following robust months following the GST-cut last year.

Sharma expects two-wheeler demand to sustain. However, given consumers’ acute sensitivity to rising monthly running costs, he notes they may increasingly shift towards lower-ticket or more fuel-efficient models. The risk of purchase deferrals, however, remains elevated, particularly if fuel inflation is compounded by tighter financing conditions.

Price Hike Soon?

India's luxury car players, including Mercedes-Benz and Audi, have announced hikes of up to 2%, effective April 1. Industry leaders Brendon Sissing and Balbir Singh Dhillon cited sustained rupee depreciation against the euro and rising input costs as the primary triggers, marking a necessary shift to maintain business sustainability amidst global volatility.

“While we always strive to absorb cost pressures, some price adjustment becomes necessary to maintain business sustainability,” Sissing, Vice President, Sales & Marketing at Mercedes-Benz India, said.

On Monday, Tata Motors, which is the largest commercial vehicle maker in the country, also announced a price increase of up to 1.5% across its commercial vehicle range, effective April 1.

Companies like Maruti Suzuki, Hyundai and Tata Motors are also reviewing their pricing strategies to protect margins in the upcoming months.

Sharma noted that while price hikes are on the table, they are expected to be calibrated rather than immediate. Manufacturers are expected to initially cushion the blow through inventory buffers and cost-control measures. However, should elevated freight and energy costs persist, selective price increases are likely—particularly in lower-margin segments where logistics costs bite hardest.

"Commodity price pressure remains," stated Shailesh Chandra, MD and CEO of Tata Motors Passenger Vehicles, during the company’s quarterly earnings call in February 2026. He clarified that the company will announce a price hike soon.

Maruti Suzuki and Hyundai declined to comment on the development.

It may be noted that most manufacturers had deferred their traditional January price increases to preserve the sales momentum sparked by the GST 2.0 tax cuts in September 2025, which slashed rates on small cars and two-wheelers from 28% to 18%.

Though geographically distant, the West Asia conflict is poised to trigger a severe domestic ripple effect, potentially paralysing automotive supply chains and leaving a dent in the sector’s growth trajectory.