India-Oman trade pact comes into force today; why it may be a breather amid Hormuz crisis

Even as the US-Iran war escalated with retaliatory strikes between the two nations, think tank GTRI said India's trade pact with Oman, which comes into effect today (June 1), holds strategic significance for India.

This is primarily because Muscat's coastline lies outside the Strait of Hormuz, unlike other Gulf nations, enabling it to remain a reliable trade and energy gateway for India even during regional conflicts, disruptions or geopolitical instability, GTRI pointed out.

In that sense, the pact is not just a trade agreement but also an investment in India's long- term energy and economic security, it added.

The Comprehensive Economic Partnership Agreement (CEPA) between India and Oman was signed in December last year.

Oman's strategic location

The Global Trade Research Initiative (GTRI) said that Oman has a population of 55 lakh and a GDP of about USD 110 billion and hence trade gains to India will remain modest. However, the importance of the agreement lies in Oman's location.

Also read: India-Oman CEPA to boost bilateral ties, Modi says in Muscat

"Unlike most Gulf countries, which rely on shipping through the Strait of Hormuz, much of Oman's coastline is located outside the Strait, directly on the Arabian Sea and the Gulf of Oman. This allows major ports such as Port of Salalah and Port of Duqm to remain accessible even when traffic through the Strait is disrupted.

"As a result, Oman can continue serving as a reliable trade and energy gateway during periods of conflict or instability in the Gulf," GTRI Founder Ajay Srivastava said, adding the ongoing Gulf conflict has clearly demonstrated this advantage.

War escalates

Meanwhile, the US-Iran war continues to escalate, as the United States bombed Iranian radar and drone control sites in Iran after Tehran shot down an American MQ-1 Predator drone this weekend. This information was shared by the American military on Monday.

Iran acknowledged launching a retaliatory strike, while Kuwait said it was intercepting incoming drone and missile fire. The duelling attacks reflect the fragility of a weekslong ceasefire in the Iran war, which has seen repeated attacks even as American and Iranian officials try to negotiate a deal to extend it.

Iran has maintained its chokehold on the Strait of Hormuz in the meantime, disrupting global energy supplies as a fifth of all oil and natural gas traded once passed through the narrow mouth of the Persian Gulf.

India's imports from Oman surge

In this climate, India's imports from major Gulf economies fell sharply from about USD 15 billion in April 2025 to USD 9.8 billion in April 2026, while India's exports to the region dropped from USD 4.4 billion to USD 2.7 billion.

However, Oman was the notable exception. India's imports from Oman surged by 246.4 per cent, rising from USD 430 million to nearly USD 1.5 billion, driven by higher purchases of crude oil and urea.

Also read: Global evacuation efforts intensify as nations race to bring home citizens from Gulf

Meanwhile, India's exports to Oman declined by only 10.3 per cent.

Dependable alternative

"The experience shows that Oman can act as a dependable alternative trade and energy gateway for India when the Strait of Hormuz becomes risky or congested," he said.

The US-Iran war has severely disrupted the movement of ships in the international waters crossing the strait, which handles about one-fifth (roughly 20 per cent) of global daily oil consumption and 25 per cent of global seaborne oil trade, making it the world's most critical energy chokepoint. The war has disrupted flow of oil and gas to India from Saudi Arabia, Qatar and UAE. It has led to a surge in crude oil prices.

What India gains

Oman has granted immediate zero-duty access on about 98 per cent of its tariff lines, covering roughly 99 per cent of India's exports by value.

Indian exports to Oman totaled about USD 4 billion in fiscal 2026, led by refined petroleum products such as petrol (USD 781 million) and naphtha (USD 746 million), followed by calcined alumina (USD 277 million), iron and steel products (USD 230 million), machinery (USD 178 million), and rice (USD 167 million).

Srivastava said that although more than 80 per cent of Indian exports already entered Oman at relatively low average tariffs of around 5 per cent, duties on certain products reached as high as 100 per cent.

"Their elimination is expected to improve the competitiveness of Indian goods in the Omani market, though export growth will inevitably be constrained by the country's relatively small population and market size," he said.

Oman's gains

Oman's gains are concentrated in sectors where it is already a major supplier to India, including energy, fertilizers, and industrial raw materials.

Under the agreement, India will eliminate or reduce tariffs on about 78 per cent of its tariff lines.

India imported USD 7.2 billion worth of goods from Oman in fiscal 2026, dominated by crude oil (USD 1.6 billion), liquefied natural gas (USD 1.2 billion), and fertilisers (USD 843 million).

Oman is also an important source of industrial feedstocks, supplying methanol worth USD 465 million and ammonia worth USD 424 million.

"The CEPA therefore strengthens a relationship that is as much about securing reliable supplies of energy and industrial inputs as it is about expanding bilateral trade," he said.

The CEPA, signed on December 18, 2025, will become India's fifth free trade agreement to be implemented in the past five years and its 15th overall.

(With inputs from agencies)