Editorial     

Published: April 15, 2026
Updated: April 15, 2026

Indian economy caught in W Asia crossfire

It is indeed unfortunate that though India is not involved in the US-Israel war with Iran, the bloody conflict is already hitting our economy very hard. In an increasingly interconnected world, geography no longer insulates economies from geopolitics. The ongoing confrontation in west Asia may be unfolding thousands of kilometres away but its tremors are already being felt across India's economic landscape. From fuel pumps and stock markets to fiscal balances and corporate boardrooms, crude oil has emerged as India's Achilles' heel.

The most immediate and profound impact stems from energy. India imports over 85–90 per cent of its crude oil needs, and over 40 per cent of this is routed through the strategically vital Strait of Hormuz. Any disruption here is not just a regional concern — it is an economic shockwave. Recent escalations have already pushed oil prices sharply higher, with Brent crude shooting up from around $65 per barrel to the $95–100 range amid fears of supply disruption. For India, this translates into a swelling import bill, higher fuel prices and cascading inflation across sectors from transportation to manufacturing.

The implications are structural. A $ 10 rise in crude oil can significantly widen India's current account deficit, while inflationary pressures may force a tighter monetary policy. The rupee, the Indian currency, faces depreciation risks amid capital outflows. In short, oil is not just a commodity -- it is the transmission channel through which the war enters the Indian economy. Rising energy costs rarely stay confined to petrol pumps. They seep into food prices, logistics and household budgets. The result is a squeeze on consumption -- the very engine that powers India's growth story.

The closure of the Strait of Hormuz does not adversely affect the Indian economy through oil alone, it also administers blows to the economy beyond oil to fertiliser imports (resulting in higher prices and a subsidy burden which in turn lead to a larger current account deficit), shipping routes (a shift in shipping routes results in higher freights, and longer time for delivery) and remittances from Indian workers (a sharp fall in remittances to India). Exports too will suffer, particularly in sectors reliant on Middle East markets or cost-sensitive logistics.

There is a strategic dilemma here because, unlike previous global crises, this conflict places India in a delicate geopolitical position. It maintains strong ties with the US (a strategic and technological partner), Israel (a defence and innovation partner), and Iran(energy and connectivity interests). Balancing these relationships while safeguarding the country's economic interests underscores India's 'doctrine of strategic autonomy'.

But neutrality does not shield it from the economic fall-out. The US-Israel vs Iran conflict is not just a geopolitical flashpoint, it is an economic stress test for India. In the short term, the risks are clear -- inflation, violatility and external imbalance. The long-term risks are also looming. The Indian economy, which was all set to climb from fourth largest in the world to third largest, has tumbled to the sixth position, according to the International Monetary Fund. Prime Minister Narendra Modi's target for India as the world's third largest economy will take a much longer time now. According to the April 2026 IMF World Economic Outlook, India has for the time being dropped to the sixth position by nominal GDP, behind the US, China, Germany, Japan and the UK. The drop stems from the rupee's depreciation and GDP revisions rather than structural slowdowns. This is an outcome of the US-Iran war.

The silver lining, however, is that India remains one of the world's fastest growing economies, albeit with a reduced growth projection of 6.5 per cent. Unfortunately, remedial policy actions seem to have been put on the backburner in view of the elections in five states. As a result, politicking rules while the economy languishes.