India Faces Significant Economic Consequences in Event of Prolonged Middle East Conflict

Asia-Pacific Economic Outlook: India Faces Steep Setback Amid Middle East Conflict

Moody's Analytics has assessed the potential impact of the ongoing Middle East conflict on major economies in the Asia-Pacific region, with India facing a significant economic setback. The assessment places India among the most exposed major economies, alongside South Korea and China, as rising geopolitical tensions threaten to disrupt energy supplies and push up commodity prices.

India's heavy dependence on oil and gas imports from Gulf economies caught in the conflict makes it vulnerable to the escalating tensions. As energy prices surge, the impact is expected to ripple through the economy, raising inflation, widening trade deficits, and weighing on consumption. The report warns that a prolonged conflict scenario could significantly dent growth across the region.

Asia-Pacific growth is expected to slow to 4% in 2026 from 4.3% in 2025, with further moderation likely thereafter. For India, the risks are compounded by relatively limited energy buffers compared with developed Asian economies. 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.

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Despite these headwinds, India is expected to retain its position as the fastest-growing major economy. Moody's projects growth at 7.5% in 2026, easing from 7.8% in 2025, before slowing further to around 6.5% in 2027. Inflation is likely to remain broadly anchored around the Reserve Bank of India's 4% target, although risks remain tilted to the upside if commodity prices continue to climb.

Key Statistics:

• Brent crude opened nearly 60% higher compared with February 27
• Rupee has depreciated 2% against the dollar
• Asia-Pacific growth expected to slow to 4% in 2026 from 4.3% in 2025
• India's growth expected to be 7.5% in 2026, easing from 7.8% in 2025