India’s economy could face rising risks if the escalating conflict in the Middle East disrupts energy supplies and drives global oil prices higher, according to Moody’s Ratings. The agency warned that such disruptions could weaken the rupee, fuel inflation, and widen the country’s current account deficit. India remains particularly vulnerable because of its heavy reliance on energy imports from the region. Nearly 46 percent of the country’s crude oil and liquefied natural gas (LNG) imports originate from the Middle East, making supply stability crucial for economic stability.
Strait of Hormuz Disruptions Raise Supply Risks
The ongoing conflict in West Asia has already affected energy trade routes, particularly through the strategic Strait of Hormuz. The narrow waterway serves as one of the world’s most critical corridors for transporting crude oil and LNG. Shipping activity through the strait has slowed significantly as tensions escalated, while some regional ports have suspended operations. As a result, global trade in oil and LNG has faced disruptions, raising concerns about supply stability. Moody’s noted that sustained disruptions could increase India’s import costs, weaken the rupee, and push domestic inflation higher. In addition, the government may need to expand subsidies to protect consumers and businesses from rising energy prices, which could complicate fiscal and monetary policy management.
Global Energy Markets Face Growing Uncertainty
Beyond India, the rating agency cautioned that prolonged disruptions could have serious implications for the global economy. Although physical damage to energy infrastructure remains limited so far and global inventories offer short-term buffers, the situation could deteriorate if navigation through the Strait of Hormuz remains restricted. In such a scenario, Brent crude prices could climb above USD 100 per barrel, potentially triggering higher inflation, tighter financial conditions, and slower global economic growth.
Baseline Outlook: Temporary Disruptions
Under its baseline scenario, Moody’s expects the conflict to remain relatively short-lived and shipping through the Strait of Hormuz to resume in the near term. If this outcome materialises, the agency forecasts that Brent crude prices will average between $70 and $80 per barrel in 2026. This would represent only a modest increase from the $69 per barrel average recorded in 2025, thereby limiting the broader impact on global economic growth.
Adverse Scenario: Oil Prices Surge
However, the risks could intensify if supply disruptions persist. In a more adverse scenario where Brent crude remains above $100 per barrel, energy-importing regions such as Asia and Europe would face considerable economic strain.
Higher energy prices would increase both consumer and industrial costs, reduce household purchasing power, and discourage investment. Moreover, persistent inflation could force major central banks to maintain elevated interest rates or raise them further. As reported by knnindia.co.in, such policy tightening would likely restrict liquidity, tighten financial conditions, and slow global economic activity, Moody’s warned.
