West Asia Conflict Threatens India's Growth, Oil Supply: SBI Report

The report highlighted that while the immediate inflationary impact of the widening conflict in the Middle East may remain limited, prolonged tensions and supply chain disruptions could significantly affect global economic stability.

One of the major concerns for India is the potential impact on crude oil supplies if tensions disrupt traffic through the Strait of Hormuz, a critical global energy corridor.

The report noted, "India imports nearly 90% of its crude oil requirements. About two million barrels per day of this, out of 5.5 million, transits through the Strait of Hormuz."

Any closure or disruption in this route could lead to supply constraints and higher import costs for the country.

Nearly 20 per cent of the world's crude oil passes through this narrow waterway, making it one of the most important oil transit chokepoints globally.

Global oil markets have already reacted to the rising tensions. Brent crude prices have surged from about USD 58.92 per barrel in December 2025 and USD 70.75 per barrel in late February 2026 to around USD 85.40 per barrel in early March, crossing USD 89 per barrel as geopolitical risks intensified.

Higher oil prices could have broader macroeconomic consequences for India. According to the SBI Research estimates, every USD 10 per barrel increase in crude oil prices could widen India's current account deficit (CAD) by around 36 basis points. The rise in oil prices may also lead to cost-push inflation, increasing consumer price inflation by around 35-40 basis points.

Economic growth may also face some moderation if oil prices remain elevated. The report estimates that a USD 10 per barrel increase in oil prices could reduce India's GDP growth by around 20-25 basis points. In a worst-case scenario where crude oil prices rise to USD 130 per barrel, India's GDP growth in FY27 could slow to around 6 per cent from the assumed baseline of about 7 per cent.

The report also flagged risks to India's inward remittances, particularly from the Gulf region. India received personal remittances worth around USD 138 billion in FY25, up from USD 119 billion in FY24. Notably, about 38 per cent of these remittances originate from Gulf Cooperation Council (GCC) countries, making them sensitive to oil price movements and economic conditions in the region.

A prolonged conflict could also impact India's trade with West Asian countries. GCC nations account for over 13 per cent of India's exports and more than 16 per cent of its imports, while other West Asian countries account for around 2 per cent of exports and nearly 4 per cent of imports.

Beyond trade and energy, the report noted that Indian banks and private sector entities also have significant exposure to the region, which could pose additional risks if geopolitical tensions escalate further.

Despite these risks, the report said India has taken several steps to reduce vulnerability to supply shocks. The country has diversified its crude oil sourcing and currently imports oil from more than 40 countries, including increased purchases from Russia since 2022.

The report also noted that actions by the Reserve Bank of India (RBI), including interventions in the foreign exchange market and open market operations, have helped stabilise financial markets and manage volatility in the rupee amid global uncertainties.

The report says overall. India remains relatively insulated in the short term, the report cautioned that a prolonged escalation of the West Asia conflict could affect oil prices, trade flows, and macroeconomic stability in the medium term.

- ANI