India’s Economy Faces Limited Impact from Middle East Crisis: SBI Research

As tensions simmer in the Middle East, concerns are mounting over their potential economic fallout.

A new report by SBI Research has warned that a broader conflict could ripple across global markets, fuelling inflation. But there seems to be a silver lining. India may weather the storm better than many.

Could a widening West Asia conflict ignite global inflation?

A deepening crisis in the region could send shockwaves across economies worldwide. According to the report, “Should the raging conflict in Middle East proliferate asymmetrically across jurisdictions, asset classes and supply chains, the cumulative shock could trigger a new wave of inflation globally: India still a notable exception.”

It cautions that while the immediate impact may be contained, the broader consequences could be significant if disruptions spread across trade, finance and energy markets.

How vulnerable is the global economy to supply chain and trade disruptions?

The report underscores that even limited escalation can have outsized effects. “The immediate inflationary impact of widening conflict in the Middle East is likely to be limited. But potential trade and supply chain disruptions, weakening business sentiment and elevated uncertainty could have major consequences for the global economy,” it said.

With critical routes such as the Strait of Hormuz at risk, energy flows, and by extension, global prices, remain highly sensitive to geopolitical developments.

Why might India remain relatively insulated despite global shocks

India’s exposure lies primarily in oil imports and remittances from Gulf nations. “The impact on India's economy may be a short-term impact on remittances and crude oil imports,” the report said.

However, structural buffers offer resilience. “India's personal remittances increased 15% to $138 billion in FY25... GCC countries account for around 38% of the total remittances that India receives,” the report noted.

On energy, the dependence is stark. The report says, “India imports nearly 90% of its crude oil requirements, yet diversification provides a cushion. India has strategically shifted to import oil from more than 40 countries, more from Russia since 2022.”

Still, risks remain if oil prices surge. The report estimates that “for every ~$10 per barrel increase in crude oil prices may widen the CAD by 36 basis points and lead to a 35-40 basis point rise in inflation.”

(With inputs from ANI)