New Delhi
Ratings agency ICRA warned on Thursday that rising geopolitical tensions in the Middle East and the resulting increase in crude oil prices could harm India’s economy. If tensions escalate, it could affect India’s Current Account Deficit (CAD), currency value, foreign portfolio investments, and inflation rates.
ICRA noted that a $10 per barrel rise in crude oil prices could raise India’s CAD by 0.3% of GDP. This would also put pressure on the USD/INR exchange rate and might reduce Foreign Portfolio Investor (FPI) inflows into India. Additionally, higher oil prices could lead to increased Wholesale Price Index (WPI) inflation, and to a lesser extent, Consumer Price Index (CPI) inflation in FY2025. A sustained increase in crude prices could also slow down GDP growth during this fiscal year.
ICRA highlighted that India does not import crude oil from Iran due to Western sanctions, but an escalation in Middle Eastern conflicts has raised Brent crude prices. Iran’s share in India’s total merchandise imports dropped below 1% in FY2023 from 2-3% before FY2019.
A significant concern is the potential closure of the Straits of Hormuz by Iran, which would disrupt crude oil transport from the Middle East to India, where a large portion of India’s oil imports come from. This could further impact Indian economic indicators, ICRA cautioned.
