‘India faces rupee and inflation risks from Middle East energy disruption’

New Delhi: India could face pressure on the rupee, higher inflation and a widening current account deficit if the escalating Middle East conflict disrupts energy supplies and pushes up oil prices, given its heavy dependence on crude and LNG imports from the region, according to Moody’s Ratings.

“India stands out among large Asian economies that rely significantly on crude oil and LNG from the Middle East,” the rating agency said, noting that about 46 per cent of the country’s oil and natural gas requirements are sourced from the region.

Supplies have been affected as the widening West Asia conflict has disrupted shipping through the Strait of Hormuz, a key conduit for crude oil and liquefied natural gas (LNG) exports.

Moody’s warned that higher energy import costs could weaken the rupee, push up inflation and worsen the current account balance. It could also complicate monetary policy and fiscal management if the government expands subsidies to cushion the economic shock.

The agency said the Middle East conflict poses a significant risk to the global economy, particularly if disruptions to energy markets persist. The Strait of Hormuz remains a crucial chokepoint for global oil and LNG trade. Although core energy infrastructure has not been significantly damaged so far and global inventories offer short-term buffers, shipping through the strait has largely stalled and some regional ports have suspended operations, affecting oil and LNG trade.

A prolonged disruption in navigation through the strait beyond a few weeks could trigger sustained supply shortages and push Brent crude prices above $100 per barrel, Moody’s said. Such a scenario would lead to higher inflation, tighter financial conditions and slower global economic growth.

Energy-importing regions, particularly in Asia and Europe, would face the most immediate stress if crude prices remain above $100 per barrel.

However, in its baseline scenario, Moody’s assumes the conflict will be relatively short-lived and shipping through the Strait of Hormuz will resume soon. Under this scenario, Brent crude prices are expected to average $70–80 per barrel in 2026, only moderately higher than the $69 per barrel average in 2025, limiting the impact on global growth.

In contrast, a prolonged disruption pushing oil prices above $100 per barrel for an extended period would significantly strain energy-importing economies. Higher energy costs would raise consumer prices and production costs globally, erode household purchasing power and weigh on investment. Persistent inflation risks could also force major central banks to keep interest rates higher for longer, tightening financial conditions and dampening global growth, Moody’s added. Agencies