K News Desktop-Impact of Iran-Israel tension! Expensive oil may increase India’s inflation, may also put pressure on GDP
The increasing geopolitical tension in West Asia is now affecting the global economy as well as India’s economy. Experts believe that due to the ongoing conflict in the Middle East, crude oil prices may remain high, due to which there is a danger of inflation increasing in India in the financial year 2027. According to economists, if crude oil prices remain high then inflation in the country may increase by 10 to 20 basis points. However, fuel retailers can provide some relief to consumers by not increasing the prices of petrol and diesel immediately. Despite this, expensive oil may have an impact on economic growth and Current Account Deficit (CAD). In fact, after the joint attacks on Iran by America and Israel on February 28, Tehran started retaliating. Since then, tension has been continuously increasing in the Middle East. The effect of this has been seen on the global oil market, where the price of Brent crude increased from $ 73 per barrel to around $ 85. In Friday’s trading session it even crossed $94 per barrel.
HDFC Bank estimates that if the average price of crude oil remains at $65 per barrel, India’s inflation rate in fiscal year 2027 could be around 4.3 percent. But if prices reach $75, inflation may increase by about 0.20 percent. Sakshi Gupta, Principal Economist of the bank, says that if this crisis prolongs then the impact on inflation can go up to 0.50 percent, especially if there is no change in excise duty.
According to Rajni Sinha, Chief Economist of CareAge Ratings, if crude oil prices continuously remain above $ 80 per barrel, then inflation in financial year 2027 may be about 0.10 percent higher than the earlier estimate of 4.3 percent. The weightage of petrol and diesel in the new Consumer Price Index (CPI) series has also increased to 4.8 percent, due to which fuel prices may have a greater impact on inflation. According to Radhika Rao, Senior Economist of DBS Bank, if crude oil prices rise more than the estimates of central banks, then there may be a risk of additional increase in inflation by about 0.30 percent.
India imports more than 85 percent of its crude oil needs, about half of which comes through the Strait of Hormuz. In the first ten months of FY 2026, India purchased about 47 percent of its oil from Middle East countries like Saudi Arabia, UAE, Kuwait and Iraq. However, some experts believe that there is little possibility of an immediate big increase in the prices of retail petrol and diesel, which may provide some relief to the common consumers. According to Nomura, its impact on inflation and GDP growth may currently be limited to about 10 basis points. However, if crude oil prices remain high for a long time, India’s economic growth may be affected. Madan Sabnavis, Chief Economist of Bank of Baroda, says that in case of supply disruption, the country’s economic growth rate may reduce by 20 to 30 basis points. According to the sensitivity analysis of the Reserve Bank of India, a 10 percent increase in crude oil prices can reduce real GDP growth by about 0.15 percent.
Expensive oil may also impact India’s current account deficit. CareAge Ratings estimates that India’s CAD could reach 1.3 to 1.8 per cent of GDP in FY2027 if crude prices remain above $80 per barrel for several months.
Experts believe that the situation in the Middle East and oil prices will play an important role in determining India’s inflation, economic growth and external trade balance in the coming months.
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