Iran War Risks Worsening India's Current Account Deficit Amid Elevated Oil Prices

India's Current Account Deficit at Risk of Widening Due to Escalating Oil Prices

The ongoing US and Israel conflict with Iran has the potential to significantly impact India's current account deficit (CAD), with $9 billion in additional liabilities projected for every $10 increase in crude prices. According to Barclays analysts, India's sensitivity to energy shocks is a major concern, as the country's oil import bill accounts for approximately 27% of total imports.

Global Oil Prices Reach New Heights

Global oil prices have been volatile since the conflict escalated, with Brent crude surging above $110 on March 9, briefly touching $120, the highest since 2022. While the price has retreated to around $91.7 on signals of a possible de-escalation, the risks to shipping through the Strait of Hormuz, a vital energy corridor, remain heightened.

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India's CAD to Widen in FY27

Analysts at CRISIL project India's CAD to rise to around 1.2% of GDP in FY27, compared with about 0.8% expected in FY26, citing risks from higher crude prices and weaker global trade. However, a strong services trade surplus, particularly from IT and business services exports, is likely to keep the deficit manageable.

Recent Developments

India's CAD widened to $13.2 billion in the December quarter, or 1.3% of GDP, compared with $11.3 billion or 1.1% of GDP in the year-ago quarter. The cumulative CAD for the first three quarters of FY26 stood at $30.1 billion, or 1% of GDP, narrower than $36.6 billion (1.3% of GDP) in the year-ago period on higher services exports.

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