India’s economy and government finances are coming under growing strain from the Iran war, as rising global energy prices and disrupted oil supplies increase inflation risks and pressure fiscal stability, according to reporting and analysis published by Reuters. The country, which depends heavily on imported oil, is now facing what economists describe as a widening macroeconomic shock linked to prolonged geopolitical tensions in the Middle East.
India imports about 90% of its oil needs, making it one of the world’s most exposed major economies to fluctuations in global crude markets. Reuters reported that economists expect economic and fiscal costs to rise further if the conflict between the United States and Iran remains unresolved and disruptions to oil flows persist, particularly through strategic routes such as the Strait of Hormuz, which handles a significant share of global oil and gas transit.
The conflict has already driven a sharp increase in India’s import bill. According to data cited by Reuters, India’s oil and gas import costs surged 53% in April compared to March, contributing to concerns over a widening balance of payments deficit. Analysts have warned that sustained high prices could continue to weigh on growth, inflation, and government finances, despite policy interventions by Indian authorities.
Reuters also reported that benchmark international oil prices climbed sharply after the war began on February 28, briefly reaching nearly $120 per barrel before easing. However, prices remain approximately 30% higher than pre-conflict levels, while gas prices have increased by about 75% over the same period. Economists cited in the report said these sustained increases are creating overlapping supply shocks that are increasingly difficult for policymakers to manage.
India’s central bank and government have taken measures aimed at stabilizing financial conditions, including steps to support foreign exchange reserves and manage currency pressures. However, analysts quoted by Reuters said these interventions may be insufficient to offset broader economic effects if energy prices remain elevated. Inflation expectations have also shifted upward, with projections cited in the report placing average inflation at 5.1% through March 2027, compared with lower levels earlier in the year.
The report highlighted that the inflationary impact extends beyond fuel prices, affecting agriculture through rising fertilizer costs and potential supply disruptions. These pressures come at a sensitive time for India’s rural economy, which remains highly dependent on stable input costs and favorable weather conditions, including concerns related to El Niño-linked drought risks.
Fiscal strain is also emerging as a key concern. Reuters reported that India’s fiscal deficit target of 4.3% of GDP could widen, with some forecasts suggesting it may rise to as high as 5%. Government revenue measures, including cuts in fuel taxes and increased subsidies, are expected to further constrain fiscal space, while rising fertilizer subsidies and indirect costs associated with fuel pricing policies are adding to budgetary pressure.
At the same time, policymakers are attempting to contain retail fuel price increases domestically, even as global prices rise. According to Reuters, petrol and diesel prices in India have increased by less than 10%, compared with significantly higher increases in other oil-importing countries in Asia, reflecting government efforts to shield consumers from global volatility.
Economists cited by Reuters warned that the combined effect of higher transport costs, weaker consumption, and reduced investment could weigh on growth prospects. India’s previously strong economic momentum has now been disrupted, with analysts describing the current environment as increasingly challenging for both monetary and fiscal policymakers navigating simultaneous inflationary and external shocks.
