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COVER STORY MAY 29, 2026 | The Indian Eye 4

IRAN WAR SHOCK

WAY FORWARD

FOR ECONOMY

The Iran war has exposed India’s vulnerabilities on oil, trade and inflation, but economists believe

the crisis can still become a turning point for structural reform and economic resilience.

OUR BUREAU
New Delhi / Dubai / Mumbai

he escalating conflict in West
Asia has pushed the Indian
Teconomy into one of its most
difficult external crises in years. Rising
crude oil prices, supply chain disrup-
tions, capital outflows and mounting
inflationary pressures are beginning
to hit growth, jobs and household
budgets simultaneously. Economists
warn that the effects are no longer
theoretical. They are already visible
in India’s current account deficit,
weakening rupee, slowing industrial
activity and rising import costs.
Yet amid the anxiety, economists
and policy experts also see a possible
path out of the crisis. Their prescrip-
tions differ in emphasis, but together
they point toward a broader strategy:
using India’s financial buffers wise-
ly, accelerating structural reforms,
diversifying supply chains, investing
in human capital and turning global
uncertainty into an opportunity for
economic repositioning.
The immediate danger comes
from energy. India remains heavily
dependent on imported crude oil, A large crowd of people on two-wheelers queues up at a Bharat Petroleum pump amid fuel shortage and price hike concerns in Bhubaneswar on Friday (ANI)
and the Iran war has transformed
oil prices into the single biggest risk current account deficit is expected to warning that the current account The same increase also feeds directly
to macroeconomic stability. Accord- widen sharply to 2.2 per cent of GDP deficit could rise to 2.1 per cent of into consumer inflation.
ing to Crisil Intelligence, the closure from 0.8 per cent. GDP. The reasons are clear: elevated The pressure is already visible in
of the Strait of Hormuz has created Rajani Sinha, Chief Economist crude oil prices, rising freight and in- daily life. Mehrotra pointed to short-
“the largest energy shock on record.” at CareEdge Ratings, echoed these surance costs, disrupted trade routes ages of industrial LPG affecting ce-
The agency warned that the damage concerns. “The West Asia crisis is and falling foreign capital inflows. ramics and restaurants. “There has
to oil and gas infrastructure in West going to impact the Indian economy India’s vulnerability is magnified been a significant decline in the num-
Asia could continue affecting prices through various channels,” she said. because oil affects nearly every sec- ber of jobs in the restaurant industry
even after trade routes reopen. “Not just growth and inflation, but tor of the economy. Former UN Eco- because LPG has simply not been
That shock is already feeding it’s also going to adversely impact nomic Advisor Santosh Mehrotra ex- sufficiently available,” he noted.
through multiple layers of the econ- government finances and, very wor- plained the scale of the transmission Inflation is emerging as the sec-
omy. Crisil projected India’s GDP ryingly, also India’s balance of pay- effect. “For every USD 10 increase ond major threat. Crisil expects con-
growth to slow to 6.6 per cent in ments situation.” in the international price of oil, it in- sumer price inflation to jump sharply
fiscal 2027 from 7.6 per cent in the Sinha projected growth moder- creases our current account deficit by to 5.1 per cent in fiscal 2027 from 2
previous year. At the same time, the ating to “around 6.7 per cent” while about 0.3 per cent of GDP,” he said. Continued on next page... >>

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