India among worst hit if Middle East conflict drags, GDP could take up to 4% hit: Moody’s Analytics

War can be a drag on India's economy

• India’s output may drop 4% if Mideast conflict continues
• India is highly exposed due to heavy oil and gas import reliance
• Moody's projects India's growth at 7.5 percent in 2026

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India could face one of the steepest economic setbacks in the Asia-Pacific region if the ongoing Middle East conflict persists, with output potentially falling by nearly 4 percent from its baseline trajectory, according to Moody’s Analytics.

The assessment places India among the most exposed major economies in the region, alongside South Korea and China, as rising geopolitical tensions threaten to disrupt energy supplies and push up commodity prices.

The vulnerability stems from India’s heavy dependence on oil and gas imports from Gulf economies caught in the conflict.

As energy prices surge, the impact is expected to ripple through the economy—raising inflation, widening trade deficits, and weighing on consumption.

“India and China face sizeable damage given their dependence on oil and gas imports from Gulf economies caught up in the conflict,” Moody’s Analytics noted in its latest Asia-Pacific outlook.

The report warns that a prolonged conflict scenario—particularly one that triggers a sharp spike in oil prices—could significantly dent growth across the region.

Asia-Pacific growth is already expected to slow to 4 percent in 2026 from 4.3 percent in 2025, with further moderation likely thereafter .

For India, the risks are compounded by relatively limited energy buffers compared with developed Asian economies, which rely more on strategic reserves. While government interventions such as fuel subsidies and price controls may cushion some of the immediate impact, a sustained rise in energy costs could still drag down economic activity, the report noted.

Despite these headwinds, India is expected to retain its position as the fastest-growing major economy. Moody’s projects growth at 7.5 percent in 2026, easing from 7.8 percent in 2025, before slowing further to around 6.5 percent in 2027.

Inflation, meanwhile, is likely to remain broadly anchored around the Reserve Bank of India’s 4 percent target, although risks remain tilted to the upside if commodity prices continue to climb.

Economists have already started paring down the coming year’s growth estimates. Brent crude on Monday opened nearly 60 percent higher compared with February 27, while the rupee has depreciated 2 percent against the dollar.