India's GDP might get a hit as Israel-Iran conflict pushes crude oil prices higher

New Delhi

Amid the ongoing tensions between Israel and Iran; India's GDP might get hit because of the rising crude oil prices. If the heightened tension in West Asia pushes average crude prices by USD 10 per barrel, it will typically push up India's net oil imports by nearly USD 13-14 billion during the year.

The sudden rise in crude prices will enlarge India's CAD by 0.3 per cent of GDP, noted a recent report by ICRA. If the average crude oil price rises to USD 80-90/bbl in FY2026, then the CAD is likely to widen to 1.5-1.6% of GDP from our current estimate of 1.2-1.3% of GDP, ICRA stated, as reported by ANI.

The ICRA also said "This would also exert pressure on the USD/INR pair during the fiscal. The report says the conflict between Iran and Israel, which began on June 13, 2025, pushed crude prices from USD 64-65/bbl to USD 74-75/bbl.

However, with the US strike on Iran's nuclear sites, Iran has announced that it will close the Strait of Hormuz, which can disrupt the global crude supply, ultimately raising the crude prices globally.

"Iran straddles the (Strait of Hormuz), which remains one of the key energy choke points, through which almost 20 per cent of global liquids and liquified natural gas (LNG) is traded, " noted the report.

ICRA also expects change in crude oil prices is likely to translate faster into the WPI than the CPI amid different weightage mixes in both these indices; for every 10 per cent increase in crude oil prices.

It has also been reported that the WPI inflation will rise by 80-100 bps, compared to 20-30 bps in CPI inflation, provided the transmission into RSPs of petrol and diesel takes place.

Not to forget that India imports crude from Iraq, Saudi Arabia, Kuwait and the UAE, which is routed through the SoH, and it accounts for approx. 45-50 per cent of the total crude oil imports to India.

Additionally, ICRA also emphasises that "any sustained disruption in supplies from Iran, the spread of the conflict to other large producers in this area and/or any disturbance in the trade route through SoH could drive energy prices higher."

"On the natural gas side, nearly 54 per cent of natural gas imports for India pass through SoH and a major share of the term LNG originates from Qatar and the UAE. And any disruption in the SoH may result in supply uncertainties from Qatar and the UAE, which may result in higher dependence on the spot LNG market," the ICRA concluded.

(With ANI Inputs)