West Asia conflict may hit India hard; oil spike could raise inflation, slow GDP: SBI Research

The escalating conflict in West Asia could push oil prices sharply higher and trigger inflation, widen India’s current account deficit and slow economic growth if tensions persist, according to a report by SBI Research. With nearly 90% of India’s crude oil requirement met through imports, any disruption in global energy supply — particularly through the Strait of Hormuz — poses a direct risk to macroeconomic stability.

The report noted that the Strait of Hormuz carries around 20–26% of global oil supply, making it one of the most critical energy chokepoints in the world. Any prolonged disruption in the region could send crude prices higher and create ripple effects across inflation, trade balances and growth.

SBI Research estimates that every $10 per barrel rise in crude oil prices could increase inflation by 35–40 basis points, driven by higher fuel, transport and logistics costs. This could push up retail prices and raise pressure on government finances through higher subsidy burdens.

Higher oil prices would also affect India’s external balance. The report said that a $10 increase in crude prices could widen the current account deficit by around 36 basis points, as the country’s import bill rises. A wider deficit typically puts pressure on the rupee and increases vulnerability to global financial volatility.

Growth could also take a hit if oil prices remain elevated for a prolonged period. SBI’s estimates suggest that if crude prices move towards $120–130 per barrel, India’s GDP growth could slow to around 6%, compared with the current expectation of about 7% for FY27. Higher energy costs tend to reduce consumption, raise input prices for industry and weaken overall demand, leading to slower economic expansion.

The report said the risks are not limited to oil alone. India has significant economic exposure to the West Asia region through trade, remittances and financial linkages, which could amplify the impact of prolonged geopolitical tensions.

India receives a large share of its overseas remittances from Gulf countries, making the region important for household income flows. Personal remittances to India rose to about $138 billion in FY25, with around 38% coming from GCC countries. Any slowdown in economic activity in the region due to conflict or oil price volatility could affect these inflows.

Trade exposure is also considerable. Gulf countries account for roughly 13% of India’s exports and more than 16% of imports, with crude oil, fertilisers, chemicals and precious metals among the key commodities. Prolonged disruption in shipping routes or higher freight and insurance costs could affect both exports and imports.

The report also pointed out that Indian banks and companies have meaningful exposure to West Asia, which could create financial risks if the conflict spreads or affects business activity in the region.

Despite these risks, the report noted that India has some buffers, including diversified oil import sources and active management of currency volatility by the Reserve Bank of India. However, the overall impact will depend on how long the conflict lasts and how sharply oil prices move.

If tensions ease quickly, the economic effect may remain limited. But a prolonged disruption in the region could push inflation higher, slow growth and create fresh pressure on India’s macroeconomic stability.