The escalation of the US-Israel-Iran conflict in late February 2026 has delivered a significant blow to India’s diamond industry, not through direct sanctions or supply cuts from Iran, but via severe logistical breakdowns in key trade routes. India remains the world’s largest diamond cutting and polishing centre, handling nearly 90% of global diamonds, with Surat in Gujarat serving as the industry’s heartland and employing between 800,000 and one million workers.
Logistics Breakdown Through Dubai
The primary channel of disruption has been Dubai in the UAE, a vital hub for both rough diamond imports and polished diamond exports. Over two-thirds of India’s rough diamond supply and roughly 70% of its rough and polished diamond shipments pass through Dubai. Flight cancellations, airspace closures, and the suspension of cargo operations brought much of this trade to a near standstill in the initial weeks of the conflict. Hundreds of daily parcels between India and Dubai were affected, forcing the industry to grapple with delays, rerouting challenges, and sharply higher insurance costs.
Sharp Decline in Trade Volumes
The impact has been visible in official trade figures. Rough diamond imports dropped from 134 lakh carats in March 2025 to 95 lakh carats in March 2026. Polished diamond exports fell by approximately 27% during the same period. Overall gems and jewellery exports declined by 35% in March 2026, reaching around $27.7 billion for the month. The Middle East, which accounts for nearly a quarter of India’s annual gems and jewellery exports (valued at about $30 billion), was particularly hard hit.
Industry estimates suggest that a three-month disruption could cost the sector around $2 billion, though partial diversion to alternative routes might limit the net loss to about $1.2 billion. Skyrocketing insurance premiums, cautious buyers amid currency volatility, and general uncertainty have further compounded the financial pressure.
Pre-existing Vulnerabilities Worsened
The diamond sector was already under strain before the conflict. Earlier US tariffs on Indian diamonds (later lifted), sanctions-related issues with Russian supplies, and a broader shift toward UAE-based sourcing had weakened the industry. The war has exacerbated these problems by fracturing the critical India-Dubai-Israel trading axis that underpins much of the business.
Human Cost in Surat
The effects have been particularly severe on the ground in Surat. Many polishing units have scaled back operations or shut down temporarily due to shortages of rough diamonds. Workers, especially those on piece-rate pay and those involved in lab-grown diamonds (which require longer processing times), have faced wage cuts, job losses, and in some cases migration back to their villages. Reports of rising debt and even suicides have emerged among small operators and daily wage earners, highlighting the human toll of the crisis. Some units have pivoted toward lab-grown diamonds to stay afloat, albeit at thinner margins.
Outlook and Long-term Implications
While some alternative shipping and air routes have helped ease disruptions over time, prolonged conflict continues to pose risks. Higher global oil prices, sustained demand weakness, and foreign exchange pressures could weigh further on the sector. The industry is now looking at greater diversification of routes and sourcing, but its heavy reliance on air cargo and Middle Eastern hubs leaves it structurally vulnerable to geopolitical shocks in the region.
In essence, the Iran war has not directly targeted India’s diamond supply but has exposed and amplified the fragility of its global logistics network. For an export-oriented sector that contributes significantly to employment and foreign exchange earnings, the crisis serves as a stark reminder of the interconnected risks in international trade. Recovery will depend on how quickly stability returns to West Asian skies and trade corridors.
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