Editorial     

Published: March 31, 2026
Updated: March 31, 2026

Impact of West Asia war on Indian economy

The vicious, no-holds-barred war between Israel-US and Iran has completed one month and there are no signs of it abating. While Russia and China are supporting Iran, almost all countries in the Middle East are aligned with the US as the latter has its military bases in these countries. Thus, even these countries are being bombarded by Iranian missiles, making all of West Asia a battleground. Countries like India, which are geographically far from the conflict zone, are also facing the severe economic effects of the war.

Though India has not aligned with the US in the hostilities and at the same time has maintained its friendship with Iran, its economy is already showing signs of war shock. Rising oil prices, disruption to trade and remittances, inflation raising its head again after a stable period, and the currency getting more volatile have added to the common man’s woes. The government will have to think out of the box to tackle this scary situation. Meanwhile, Prime Minister Narendra Modi has exhorted his countrymen to be prepared to face the long-term impact of the war.

Though India is far from the conflict zone and is not aligned with any side, its engagement with the region is deeply anchored in energy, trade and labour. The war has immediate as well as long-term economic consequences for it.

The very first month of the war has administered a blow to India’s energy security. India imports around 80-85 per cent of its crude requirements and nearly 50-55 per cent of this comes from West Asia. The Strait of Hormuz, through which around 40 per cent of India’s crude imports pass, has been closed by Iran as part of its war strategy. The crude oil price, which was $ 65 per barrel before the war started, has almost doubled to $115 within the first month, and as the war drags on the runaway rise will continue hitting the Indian economy very hard.

The rising crude oil prices will lead to cost-push inflation in India because fuel costs influence logistics, agriculture and manufacturing. Increased transportation and storage costs will lead to a rise in food prices, making the lives of low-income and lower middle class Indians miserable.

Not only crude oil, India’s trade ties with West Asia are also vital as the region accounts for roughly 15-18 per cent of its merchandise trade. West Asia is an important export market for India, especially for agricultural products, pharmaceuticals, textiles, chemicals, engineering goods and construction materials. The conflict has already started disrupting normal trade flows.

Labour migration forms another important pillar. The Economic Survey 2025-26 has noted that India remained the world’s largest recipient of remittances with inflows reaching a record $135.4 billion in fiscal year 2025, supporting stability in the country’s external account. The Gulf region remained a critical contributor, accounting for around 83 per cent of total inward remittances as of 2024. The current war is bound to weaken the region’s demand for Indian workers, and a drop in remittances is bound to affect the economy adversely.

Energy price shocks raise the cost of transportation goods across the country. Industries that rely on petroleum-based inputs such as fertilisers, chemicals and plastics pass rising costs to the consumer. If maritime routes are disrupted, the supply of imported fertilisers may tighten. This may adversely affect agricultural output and increase the government subsidy burden. The petro-chemicals and plastics industries face similar pressures. Many chemical feedstocks are derived from crude oil and natural gas. The rise in global oil prices push up the cost of producing plastics, synthetic fibres and packaging material, squeezing the margins of manufacturers and pushing up the inflationary price spiral.

Overall, the Indian economy will be hit hard, and this will widen the current account deficit. Inflation, which had come down of late, will shoot up again and the rising oil prices will bring down the pace of GDP growth.

The lesson from the current geopolitical instability caused by the West Asia war is clear. It highlights the need for India to strengthen economic resilience, reduce external vulnerability and protect the pace of growth and stability