Updated 23 June 2025 at 15:55 IST
Israel-Iran Conflict May Blow a Hole in India’s Economy—ICRA Warns CAD Could Spike to 1.6% of GDP
The tensions, which escalated after Iran launched a direct attack on Israel on June 13, 2025, and worsened following a US strike on Iran’s nuclear facilities
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India’s economy may take a direct hit if the escalating conflict between Israel and Iran worsens, warns credit rating agency ICRA. The agency estimates that India’s current account deficit (CAD) could widen by 0.3% of GDP if the West Asian tensions push up average crude oil prices by $10 per barrel.
According to ICRA, such a crude price surge could increase India’s net oil import bill by $13–14 billion in FY2026, raising the CAD to 1.5–1.6% of GDP, up from its current estimate of 1.2–1.3%. This rise would also exert pressure on the USD/INR exchange rate, potentially triggering broader macroeconomic instability.
The tensions, which escalated after Iran launched a direct attack on Israel on June 13, 2025, and worsened following a US strike on Iran’s nuclear facilities, have already pushed Brent crude prices from $64–65 to $74–75 per barrel. Iran has now threatened to close the Strait of Hormuz (SoH)—a move that could choke off nearly 20% of global crude and LNG trade, as per ICRA’s analysis.
India is particularly vulnerable to such a blockade, as nearly 45–50% of its crude imports, largely from Iraq, Saudi Arabia, Kuwait, and the UAE, pass through the SoH. Additionally, about 54% of India’s LNG imports, including significant long-term supplies from Qatar and UAE, also transit through this crucial waterway.
ICRA warns that any sustained supply disruption from Iran or neighboring producers, or a prolonged disturbance in the SoH, could drive global energy prices sharply higher. On the inflation front, the report highlights that for every 10% increase in crude oil prices, WPI inflation could rise by 80–100 basis points, compared to 20–30 bps in CPI, assuming full pass-through to retail fuel prices.
With India’s dependence on oil imports so high, continued geopolitical instability in the Middle East may not just disrupt supply chains—it could derail India’s economic roadmap.
Published 23 June 2025 at 15:55 IST