- India’s heavy reliance on Gulf energy exposes it to oil shock risks
- Exports and remittances face disruption as conflict deepens
- Economists warn of slower growth, higher inflation and currency pressure
India’s economy has been one of the fastest-growing among major nations, often staying ahead of China and recently overtaking Britain to become the world’s fifth-largest economy. But the ongoing US–Iran conflict and tensions across the Middle East are now raising fresh concerns around India’s growth outlook, energy security and trade stability.
A key part of India’s rise has been its strong economic ties with Gulf countries. That relationship, once seen as a major advantage, is now being tested. The Middle East supplies roughly 40 per cent of India’s oil and about 80 per cent of its gas, making the country highly exposed to any disruption in the region.
As oil prices climb, the impact is expected to spread across the economy. Higher fuel costs could push up inflation while also slowing growth, creating a difficult balance for policymakers.
Goldman Sachs has already flagged risks, reportedly saying India’s “positive growth story” is facing a “new broadside” due to rising energy prices, weaker exports to Gulf nations and the possibility of falling remittances.
Trade routes, remittances and risks
The Gulf is not just about energy. It is also a major market for Indian exports and a key hub for global trade. Cities like Dubai act as distribution centres for Indian goods ranging from textiles to electronics and even refined fuels.
Any disruption to shipping routes or air corridors could slow this flow. At the same time, millions of Indian workers in the region send money back home. India remains the world’s largest recipient of remittances, with nearly £103 billion ($130 billion) flowing in annually, and more than a third coming from Gulf countries.
If jobs or wages are affected due to the conflict, that inflow could weaken. A softer rupee may follow, adding another layer of pressure on the economy.
An Indian construction worker in Qatar reportedly said he had witnessed nearby disruptions due to missile activity but remained more worried about his family’s financial stability back home. He added that workers were hoping for a quick end to the conflict so projects could resume.
Oil shock could test India’s limits
India imports close to 90 per cent of its crude oil, much of it passing through the Strait of Hormuz. Any prolonged disruption in this route could quickly strain the country’s finances.
Oil prices above roughly £79 ($100) per barrel are generally seen as a stress point for India’s economy. With prices already elevated, concerns are growing about how long the system can absorb the shock.
The government does have some room to act, including adjusting fuel taxes or offering subsidies. But these measures come with fiscal costs. There are also expectations that fuel prices may be kept stable in the near term ahead of key state elections in April.
Analysts at ANZ reportedly said that while India is starting from a position of strength, its ability to handle a prolonged energy shock will be tested. They added that businesses, households and the government may not have strong enough financial buffers to manage a sustained rise in oil prices.
Economist Rathin Roy reportedly said India will need to watch its balance of payments closely, as imports become more expensive while exports face disruptions.
India’s foreign exchange reserves remain solid for now, but there are concerns they could come under pressure if the situation drags on.
