India’s merchandise trade deficit narrowed marginally in May 2026 as stronger exports helped offset a rise in imports, while a breakthrough US-Iran peace agreement and the expected reopening of the Strait of Hormuz improved prospects for lower energy costs and trade stability.
Official data released on June 15 showed India’s merchandise trade deficit stood at $28.21 billion in May, down from $28.38 billion in April. Merchandise exports increased to $45.20 billion, while imports rose to $73.41 billion, reflecting continued demand for energy and industrial inputs. The deficit was also slightly lower than market expectations.
The improvement came as petroleum exports benefited from elevated global energy prices, while India’s services sector continued to provide strong support. Services exports were estimated at $36.76 billion, generating a trade surplus of $17.7 billion during the month.
Market sentiment received a further boost after the United States and Iran reached a preliminary agreement aimed at ending hostilities and reopening the Strait of Hormuz, a critical route for global oil and LNG shipments. The development triggered a sharp decline in crude oil prices, with Brent crude falling around 4%, easing concerns over energy import costs for India, the world’s third-largest oil importer.
Lower oil prices are expected to reduce India’s import bill, support the rupee, ease inflationary pressures and improve the country’s external balance in the coming months. Industry leaders have also welcomed the prospect of more stable supply chains and freight movements through the Gulf region.
Financial markets reacted positively, with Indian equities, bonds and the rupee strengthening alongside a broader global rally as investors bet on improved energy security and reduced geopolitical risk.
The reopening of the Strait of Hormuz is particularly significant for India, given its heavy dependence on Gulf energy supplies. Analysts believe sustained stability in the region could help contain import costs, support export growth and strengthen India’s macroeconomic outlook for the remainder of FY2026-27.