finance
India's Economy Faces Energy Disruptions from Middle East Conflict
India's economy is experiencing impacts from an ongoing Middle East conflict affecting oil and energy supplies. The Indian rupee has declined nearly 10% against the US dollar over the past year, and stock indices have fallen 12% since the start of the year. Growth projections for 2026-27 may decrease by up to 1% due to higher import costs and supply constraints.
Apr 6, 9:21 PM·2m read1 source
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India's economy, previously projected to grow at 7% in the financial year 2026-27, is encountering challenges from disruptions in Middle East energy supplies amid an ongoing conflict. The country imports 60% of its natural gas, over 90% of its liquefied petroleum gas (LPG), and a quarter of its fertilizers from the region.
As the world's third-largest crude oil importer, India faces potential supply constraints across multiple sectors.
The Indian rupee has reached record lows, declining nearly 10% against the US dollar in the last year. The Reserve Bank of India has intervened to limit speculation, providing some temporary stabilization. Equity indices have dropped 12% since the beginning of the year, accompanied by outflows of foreign investment.
Higher energy import costs are contributing to increased inflation pressures, particularly in food prices. The finance ministry's monthly review noted supply constraints and sectoral pressures, with early signs of moderated economic activity. Remittances from approximately 10 million Indians in the Gulf region could also decline, affecting household incomes.
from various brokerages estimate that the conflict could reduce GDP growth by as much as 1 percentage point for 2026-27.
Bernstein, a global equity research firm, projected that a prolonged conflict through much of 2026 could weaken the rupee beyond 110 to the dollar. Recent changes to India's statistical base year have already led to downward revisions in GDP estimates, potentially delaying the country's goal of becoming the world's fourth-largest economy.
The government has reduced excise duties on petrol and diesel to mitigate fuel price increases ahead of state elections and imposed windfall taxes on energy exports.
Despite these measures, fuel prices at pumps have not yet risen significantly. Disruptions in natural gas supplies have led to partial or full closures of restaurants, hotels, food processing factories, ceramics industries, and funeral services, according to Capital Economics analysts Shilan Shah and Mark Williams.
