Rising Middle East Conflict Drives Oil Prices, Inflation and Trade Risks For India

The escalating Iran-Israel conflict, following coordinated US-Israel strikes on Tehran on February 28, 2026, is posing immediate economic challenges for India. With direct military engagement reported and the potential for further escalation, volatility in oil, currency, and equity markets is expected to remain elevated. Crude oil prices, which were already firming amid geopolitical tensions, surged from around $65 per barrel to nearly $72–73 per barrel over the past few days.

A major concern for India is the Strait of Hormuz, a critical transit point for nearly 20% of global petroleum liquids and about a fifth of global LNG shipments. India imports over 80% of its crude, consuming roughly 5.5 million barrels per day, of which 1.5–2 million barrels pass through Hormuz. Any disruption—or even perceived risk—can inject a geopolitical premium into oil prices, impacting the country’s energy security and inflating import bills.

Senior officials from credit rating agencies warned of significant market consequences. Prashant Vasisht, Senior Vice President at ICRA, noted that attacks on energy-producing nations near Hormuz could impede shipments, exacerbate crude price volatility, and strain global energy supplies. Similarly, Aditi Nayar, Chief Economist at ICRA, highlighted that prolonged conflict could affect India’s inflation, current account deficit, twin deficits, and even remittance flows from expatriates in the region.

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The macroeconomic impact on India is immediate, with rising crude prices feeding into higher fuel and transportation costs, ultimately contributing to broader inflation. Manoranjan Sharma, Chief Economist at Informerics Ratings, observed that escalating energy costs are likely to widen India’s current account deficit and increase subsidy obligations, placing further pressure on the fiscal deficit.

Financial markets have also reacted to heightened geopolitical risks. In February, the S&P 500 and Nasdaq Composite experienced declines, while India’s Nifty 50 registered year-to-date losses. Fund manager Nachiketa Sawrikar of Artha Bharat Global Multiplier Fund noted that elevated crude prices and global uncertainty typically magnify domestic market impacts, affecting the rupee, foreign inflows, and investor sentiment. Sectorally, energy-intensive industries, automobiles, logistics, chemicals, and paints are likely to face margin pressures, while upstream oil producers and IT exporters may see some benefits.

Strategic commercial interests in the region are under close watch. The Adani Group’s Haifa Port Company confirmed that all personnel and assets are safe and operational, coordinating closely with authorities to maintain supply chain stability. Analysts stress that India must carefully navigate the economic and commercial fallout while closely monitoring the evolving conflict in West Asia.

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