India’s current account deficit (CAD) stands to triple to USD 70 bn if crude oil prices continue to average USD 100/bbl this year, a recent SBI Funds Management report (pdf) outlines. The report estimates that every USD 10 / bbl increase in oil prices could widen the CAD by around USD 15 bn.

What’s different this time? Unlike the Russian-Ukraine energy crisis in 2022 where “shadow fleets” and rerouting kept energy flowing, India is facing a “pure supply shock” with no viable workaround if the Hormuz chokehold stays in place and cuts the country off from 60% of its LNG supply.

Currency risks: Pressure on the external account could knock the INR if capital inflows remain weak. SBI expects the currency to depreciate by 4-5% in 2026, compared with an earlier projection of 2-3%, with the INR likely to move from about INR 93 / USD to around INR 96 / USD over the next two quarters if foreign investor flows do not recover.

The conflict could affect remittances, fiscal balances, and financial conditions beyond energy markets. A significant share of India’s remittances inflows is tied to the Gulf region, with about 38% originating from the Middle East and roughly half of these flows coming from the UAE. The report also flags a weakening balance-of-payments position amid near-zero net foreign direct investment inflows, despite the CAD remaining below 2% of GDP in most years since FY 2015.

And there’s more: Rising fertilizer and gas costs are expected to weigh on government finances, with urea prices nearly 50% higher than December 2025 levels. The fertilizer subsidy requirement could increase by around INR 300 bn (USD 3.6 bn) if costs remain elevated.

Tags: