Since the onset of the US-Iran war which has led to the closure of the Strait of Hormuz, global markets have been in turmoil and consumers across geographies have been hit by rising fuel and supply shortages. 20% of the world’s crude oil passes through the strait, and since India imports 85% of its crude needs, the nation is heavily exposed. Any closure of the route tends to result in price shocks, supply disruptions, and shipping delays.
While the first effects have been felt, there are several other industries, especially in the SME sector, that are feeling the ripple effects because they are indirectly dependent on crude oil. Here is an outline of the most-impacted sectors, how they are exposed, and how it plays out for small caps.
- FMCG and consumer goods
A packaging-heavy sector that relies on petrochemical inputs
- The what and why: India’s FMCG sector is deeply dependent on crude-linked inputs through packaging, which accounts for roughly 15-20% of the total product cost in many categories. Most packaging uses plastic-based materials such as PET, HDPE and polypropylene, all of which are petrochemical derivatives and overall crude-linked inputs contribute about 10–15% of costs. As crude prices surge following the closure of the Strait of Hormuz, polymer prices have also seen sharp increases, raising immediate costs across the value chain.
- How it affects the sector: The impact can be seen in pricing and demand. Rising crude prices translate into a 15–20% increase in packaging costs, forcing FMCG companies to respond with a mix of price hikes and/or shrinkflation (reducing pack sizes while maintaining price points). These actions may protect margins in the short term, but also risk slowing demand.
- The smallcap angle: The stress may likely be felt in the packaging ecosystem which consists of predominantly SMEs. India’s packaging supply chain, which includes corrugated box manufacturers, plastic converters, and flexible packaging players, is fragmented and largely made up of small businesses. With raw material and freight costs rising sharply these players face immediate margin pressure.
- Logistics and e-commerce
Fuel is the core cost-driver (no pun intended) which has effects down the line
- The what and why: India’s logistics sector is directly tied to fuel costs, with diesel as the primary fuel input for transportation. Logistics expenses account for an estimated 8% of GDP as per a PIB release, reflecting the sheer scale of the system. India’s freight movement happens largely through road networks, with nearly 70% of goods transported via trucks. This creates a direct and immediate link between crude oil prices and logistics costs.
- How it affects the sector: The disruption is immediate and compounds over time. Rising fuel prices push up freight costs, which are then passed through to end-product pricing, which end up contributing to broader inflation. For e-commerce companies, this squeezes their unit economics, where delivery costs (especially last-mile delivery) become more expensive. Plus, supply chain disruptions linked to rerouting and delays further increases transit times and costs.
- The smallcap angle: A large section of India’s trucking industry consists of small fleet owners with 1-5 vehicles, making them particularly vulnerable to fuel shocks. With fuel expenses paid upfront and payments from clients often delayed, these operators face acute cash flow issues. Beyond the trucking sector, SMEs in third-party logistics (3PL), last-mile delivery, and small warehousing are similarly exposed to price shocks.
- Specialty chemicals and plastics
Crude is the feedstock that sits at the start of the chain
- The what and why: The chemicals and plastics sector sits at the core of crude dependency as a direct user of crude-derived feedstocks. It begins with crude oil, which is refined into naphtha and then converted into petrochemicals that form the building blocks for polymers, solvents, and a wide range of chemical intermediates. These inputs feed into multiple industries downstream including paints, adhesives, and pharmaceuticals, making the entire ecosystem structurally linked to movements in global oil prices
- How it affects the sector: The disruption translates into a broad input cost inflation across the chemicals production chain. As crude prices rise, naphtha and petrochemical derivatives become more expensive, pushing up production costs for downstream industries. This leads to price increases across end products.
- The smallcap angle: The impact is particularly severe in India’s SME-heavy chemical clusters like Vapi, Ankleshwar, and Surat which house a large number of small and mid-sized manufacturers. These companies are often integrated into the global supply chains but lack the financial flexibility of larger players. Disruptions affect raw material availability and pricing. SMEs typically depend on imported inputs and don’t have the muscle to hedge against crude volatility, leaving them exposed to sudden cost spikes. The result is thinner margins, a strain on working capital, and in some cases, even production cuts.
The big-picture impact of the current crude crisis is not just rising petrol bills and cooking gas shortages — it is in how that shock travels through the economy. As costs move from crude oil to petrochemicals to intermediates, they eventually land on India’s SME ecosystem, where pricing power tends to be weaker and second-order effects are felt at a deeper level. While large and mid-cap companies may be able to better absorb and pass on costs; with SMEs, the costs are amplified. As these disruptions play out unevenly and over time, some segments may face short-term pressure, while others may be able to adapt through pricing, substitution, or new sourcing routes.
Sources
Indian Packaging Costs Jump 15-20% on Oil Surge, Hurting Exports
Iran war impact: Crude spike, weak rupee put FMCG margins under pressure
War-driven raw material costs push up paper prices, hit packaging industry PIB: From Growth Engine to Global Edge: Supercharging India’s Logistics
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