India faces current account, inflation risks as global brokerages assess impact of US–Israel–Iran conflict

markets

• US-Israel-Iran tensions drive crude prices to $80 per barrel
• India's import bill and deficit may widen if oil prices stay high
• Brokerages warn of inflation, rupee pressure, and external risks

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India faces potential pressure on its current account deficit, inflation and currency stability as escalating tensions between the United States, Israel and Iran lift crude prices, with global brokerages including JP Morgan, Morgan Stanley, Goldman Sachs, Macquarie, Bernstein, HSBC, DBS and Nomura assessing the fallout for oil-import dependent economies.

Brent crude has moved beyond the $80 per barrel mark amid heightened geopolitical risk. Given that India imports more than 85% of its crude requirements and relies heavily on Middle Eastern suppliers — with a significant portion of shipments transiting the Strait of Hormuz — sustained higher oil prices would raise the import bill and widen the current account deficit. Brokerages also point to potential inflation pressures and risks to capital flows if elevated energy prices persist.

JP Morgan: JP Morgan estimates that crude prices already reflect about $10 per barrel of geopolitical risk premium. Its base case assumes roughly one week of heightened volatility with only minor supply disruptions caused by logistical constraints. The brokerage says every 1 million barrels per day of supply disruption sustained for one year typically introduces around $10 per barrel upside to oil prices.

JP Morgan notes that the key variable is whether physical supply flows through the Strait of Hormuz are disrupted. If fighting intensity declines and flows remain largely intact, it expects the risk premium to fade. However, for India, prolonged higher crude prices would translate directly into increased import costs.

Morgan Stanley: Morgan Stanley highlights oil price volatility as a key macro variable for energy-importing economies. It stresses that the duration of disruption — rather than the initial spike — will determine macroeconomic impact.

For India, sustained higher crude prices would exert pressure on inflation and external balances due to the country’s dependence on imported oil. The brokerage does not indicate formal GDP revisions but underscores sensitivity to energy price movements.

Goldman Sachs: Goldman Sachs estimates that crude markets currently embed a real-time risk premium of about $18 per barrel. This roughly corresponds to pricing in a one-month full halt in Strait of Hormuz flows, assuming partial offsets through spare pipeline capacity.

Its baseline assumes no sustained supply disruption and leaves broader oil forecasts unchanged. However, Goldman notes that a full one-month closure of the Strait could raise oil prices by $10–15 per barrel depending on offsets, while partial disruptions would still add upward pressure. Nearly 20% of global oil supply and around 19% of LNG flows transit the Strait.

For India, sustained higher crude prices would increase the import bill and widen the current account deficit, while LNG disruption could raise gas import costs.

Macquarie: Macquarie says the duration of the conflict remains the most important determinant of energy market impact. It estimates that the world can handle the Strait of Hormuz being shut for one to two weeks, but price pressures escalate sharply after the third and fourth week due to delivery constraints.

Macquarie expects that within three months a negotiated settlement is the most probable outcome, with energy flows normalising. However, during any prolonged disruption, elevated crude prices would weigh on oil-import dependent economies such as India.

Bernstein: Bernstein has raised its 2026 Brent oil price assumption to $80 per barrel from $65 in its base case. It outlines scenarios in which oil averages $80 per barrel under a quick resolution, $100 under a regime-change scenario and $120 under a prolonged conflict.

The brokerage notes that closure of the Strait of Hormuz could disrupt up to 20 million barrels per day of supply even after mitigation measures. It also highlights LNG risks, stating that disruption of Qatar and UAE exports could remove around 100 billion cubic metres from global supply. For India, sustained crude prices at elevated levels would increase the import bill and strain external balances.

HSBC: HSBC says energy-import dependent economies including India remain exposed to sustained oil price spikes. Higher crude prices would widen the trade deficit and could pressure the rupee, particularly if global risk aversion weakens capital flows.

The brokerage emphasises monitoring flows through the Strait of Hormuz and LNG shipping routes given Asia’s reliance on Gulf supply.

DBS: DBS estimates that every $10 per barrel increase in oil prices could widen India’s current account deficit by about 0.35% of GDP, while inflation could rise by 20–30 basis points depending on retail fuel price pass-through.

The brokerage notes that Brent’s move toward $80 per barrel has already pushed up India’s volatility gauge, weakened the rupee past 91 per dollar and led benchmark indices to fall more than 1%. DBS does not expect an immediate shift in monetary policy but flags external stability risks if hostilities persist.

Nomura: Nomura identifies India as one of the more vulnerable Asian economies to higher oil prices due to its high import dependence. It estimates that every 10% rise in oil prices could widen India’s current account deficit by about 0.4% of GDP.

India imports more than 85% of its crude requirements, with roughly half of shipments transiting the Strait of Hormuz. In fiscal 2025, Iraq, Saudi Arabia, the UAE and Kuwait together accounted for about 46% of India’s crude imports.

Nomura notes that while higher crude prices typically raise inflation and dampen growth, retail petrol and diesel prices remain unofficially pegged, with oil marketing companies absorbing part of the shock. Under current arrangements, it expects a limited impact of around 0.1 percentage point on both growth and inflation, though sustained higher oil prices could increase fiscal risks and reinforce a cautious central bank stance.