MUMBAI: India may face one of the steepest economic setbacks in the Asia-Pacific region if the ongoing Middle East conflict drags on, with growth potentially dropping by nearly 4% from its baseline trajectory, a foreign agency has warned citing the country’s heavy dependence on West Asian oil and gas to meet its energy needs.
In a note, Moody’s Analytics, an arm of rating agency Moody’s, said Monday that the economy may drop as much as 4% if the Iran war continues for long and energy supplies remain crippled.
The parent Moody’s had forecast a 7.5% growth for the country for calendar year 2026 but that was before the war began that has completely crippled energy supplies. The country imports as much as 85% of its oil demand and 60% of gas demand, half of which come from the Strait of Hormuz alone, which has been shut since the war began on February 28.
The assessment places the country among the most exposed major economies in the region, alongside South Korea and China, as rising geopolitical tensions threaten to disrupt energy supplies and push up commodity prices.
As energy prices surge -- the Indian crude basket has gone past $156.6 a barrel as of Friday last, up from $69 on February 27 -- the impact is expected to ripple through the economy, raising inflation, widening trade deficits, and weighing on consumption.
“India and China face sizeable damage given their dependence on oil and gas imports from Gulf economies caught up in the conflict,” Moody’s Analytics noted in its latest Asia-Pacific outlook on Monday and warned that a prolonged conflict—particularly one that triggers a sharp spike in oil prices—could significantly dent growth across the region.
Asia-Pacific growth is already expected to slow to 4% in 2026 from 4.3% in 2025, with further moderation likely thereafter.
“For India, the risks are compounded by relatively limited energy buffers (just about 100 million barrels in its strategic reserves which could last about seven weeks-- compared to the developed Asian economies, which rely more on strategic reserves. While government interventions such as fuel subsidies and price controls may cushion some of the immediate impact, a sustained rise in energy costs could still drag down economic activity," the report noted.
Despite these headwinds, India is expected to retain its position as the fastest-growing major economy, the report said, adding Moody’s projects growth at 7.5% in 2026, easing from 7.8% in 2025, before slowing further to around 6.5% in 2027.
Inflation, meanwhile, is likely to remain broadly anchored around the Reserve Bank’s 4% target, although risks remain tilted to the upside if commodity prices continue to climb, the report noted.