West Asia conflict | Oil to have impact on inflation, external balances: Report

The report assesses the current economic impact of the conflict and the risks that could intensify if stability does not return.

Mumbai: Every USD 10 per barrel increase in crude prices raises India’s annual oil import bill by USD 13–14 billion—with knock-on effects on inflation and external balances, according to a joint report by Rubix Data Sciences and Vayana TradeXchange.

The report — “The West Asia Conflict and Impact on the Indian Economy” — assesses the current economic impact of the conflict and the risks that could intensify if stability does not return, noting that India’s exposure to the region remains significant across energy imports, trade flows, remittances, and sector-level dependencies.

“While the situation has seen phases of de-escalation, the economic impact is already visible through higher energy prices, logistics costs, and uncertainty in trade flows,” said Mohan Ramaswamy, co-founder and chief executive officer of Rubix Data Sciences.

India imports nearly 88 per cent of its crude oil requirements, with around 46 per cent sourced from key West Asian countries, making it sensitive to supply-side disruptions and price volatility.

The report estimates that every USD 10 per barrel increase in crude prices raises India’s annual oil import bill by USD 13–14 billion, with knock-on effects on inflation and external balances.

India’s total merchandise trade with West Asia stood at USD 220 billion in FY2025, with imports significantly exceeding exports, resulting in a structural trade deficit driven largely by energy dependence, according to a press statement.

The report provides a sector-wise risk assessment across 14 key industries, highlighting varying degrees of exposure to the region. Crude oil, liquefied natural gas (LNG), liquefied petroleum gas (LPG), fertilisers, and petrochemicals are identified as high to very high-risk sectors, given their

dependence on imports and critical shipping routes such as the Strait of Hormuz.

On the goods export side, agri and food segments are also seeing early signs of risk transmission.

The report identifies rice exports as a high-risk category, given their sensitivity to freight costs, shipping disruptions, and demand conditions in Gulf markets. Frozen bovine meat exports are assessed as moderate risk, reflecting relatively more diversified demand but continued exposure to trade route disruptions and pricing pressures.

In addition, sectors such as aviation, chemicals, plastics, and logistics are experiencing indirect pressures through input cost increases, supply chain adjustments, and freight volatility.

Merchandise export-oriented segments, including gems and jewellery and engineering goods, may also see demand moderation if regional economic activity remains uneven.

Remittances, another key linkage, could also see near-term variability. India received a record USD 135.4 billion in remittances in FY2025, with nearly 38 per cent originating from Gulf Cooperation Council (GCC) countries. Any prolonged uncertainty in regional economies, particularly in sectors employing large numbers of Indian workers, could affect income flows.

On the investment front, from April 2000 to December 2025, cumulative foreign direct investment inflows from West Asia into India stood at USD 31.7 billion, led by sovereign-backed funds from the UAE and Saudi Arabia. While flows have remained steady so far, sustained uncertainty could slow the pace of new investments and capital deployment.