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Amid a sharp escalation in hostilities between the United States and Iran, India has issued a fresh advisory urging its nationals in Iran—including students, pilgrims, businesspersons and tourists—to leave the country immediately, a move that reflects not only growing security concerns but also mounting anxiety in New Delhi over the potential economic fallout of a wider regional conflict.
The advisory, issued by the Indian Embassy in Tehran, comes as fears of a possible US strike on Iranian targets intensify and domestic protests continue to roil the country. Indian nationals have been advised to avoid protest sites, keep travel documents ready and remain in constant contact with the mission, signaling contingency planning for a rapid deterioration in conditions on the ground.
However, beyond consular protection, the unfolding crisis poses a direct macroeconomic risk for India, whose energy security, inflation outlook and balance-of-payments position remain highly sensitive to disruptions in West Asia.
Oil Shock Risks Grow as Hormuz Remains the Key Pressure Point
India imports nearly 88–90% of its crude oil needs, consuming roughly 5.5 million barrels per day, making it the world’s third-largest oil consumer. Critically, more than 40% of India’s crude imports—around 2.2 million barrels per day—transit the Strait of Hormuz, a narrow maritime corridor that Iran has repeatedly threatened to block in the event of military confrontation.
Brent crude prices, which averaged $83 per barrel in FY25, have already risen close to $72 per barrel amid rising geopolitical risk premiums. Market estimates suggest that even a limited disruption to Iranian exports could push prices to $90–100 per barrel, while any interruption to Hormuz shipping could send prices well above $120 per barrel.
For India, the arithmetic is stark: every $10 increase in crude prices raises the annual oil import bill by approximately $13–15 billion. A sustained move to $100 per barrel could inflate the import bill beyond $190 billion, compared with around $160 billion at current price levels.
Inflation Could Rebound, Forcing RBI Into a Tighter Stance
Higher crude prices would quickly feed into domestic inflation, both directly through fuel prices and indirectly via transport, fertilizers and manufactured goods. Fuel and light account for about 6.8% of the Consumer Price Index, but their pass-through impact is significantly larger.
Economists estimate that a $20–30 per barrel increase in oil prices could add 0.8–1.2 percentage points to headline inflation over two to three quarters. This would be particularly disruptive at a time when inflation has only recently moderated towards the 4% target band.
Such a shock would sharply constrain the policy space of the Reserve Bank of India, potentially delaying rate cuts or even forcing a more hawkish stance to anchor inflation expectations.
Current Account Deficit and Rupee Under Renewed Pressure
India’s external accounts are equally exposed. At current oil prices, the current account deficit (CAD) is projected at around 1.2–1.4% of GDP. However, if crude averages $100 per barrel, the CAD could widen to 2.0–2.3% of GDP, while prices above $120 could push it past 2.5%, levels historically associated with heightened currency volatility.
A widening CAD would increase dollar demand, putting downward pressure on the rupee. While India’s foreign exchange reserves—currently around $620–630 billion, covering nearly 10 months of imports—offer a strong buffer, analysts warn that prolonged oil shocks could still trigger 3–6% depreciation, further amplifying imported inflation.
Growth and Fiscal Math Face Headwinds
The growth impact could also be material. Empirical estimates suggest that every $10 increase in oil prices trims India’s GDP growth by 0.2–0.3 percentage points. A prolonged spike to $100 per barrel could therefore shave 0.6–0.8 percentage points off annual growth by weakening consumption, raising input costs and squeezing corporate margins, particularly in aviation, logistics, chemicals and fertilizers.
At the fiscal level, higher oil prices often revive pressure to cut excise duties to shield consumers, potentially narrowing revenue space. This would complicate fiscal consolidation efforts, especially as the Centre targets a fiscal deficit of around 4.3% of GDP in the coming years.
Diaspora and Remittances Add to Strategic Risk
India’s exposure is not limited to trade and prices. More than nine million Indians live and work in the Gulf region, remitting over $110 billion annually, accounting for nearly 40% of total remittance inflows. Any regional instability affecting Gulf economies or labor markets could disrupt these flows, with implications for household incomes and foreign exchange earnings.
A Crisis With Far-Reaching Domestic Consequences
The embassy’s advisory in Tehran, while primarily focused on citizen safety, underscores a broader reality: escalating US–Iran tensions have the potential to spill rapidly into India’s inflation dynamics, balance of payments, currency stability and growth outlook.
Whether diplomacy prevails or conflict escalates, the data suggest that for India—one of the world’s most oil-dependent major economies—developments in West Asia now pose a clear and present macroeconomic risk rather than a distant geopolitical concern.
