A prolonged conflict in the Middle East could transmit macroeconomic pressure to India through higher energy prices, inflation, and tighter financial conditions, potentially weakening growth and domestic demand, Economic Times reports, citing Moody's.

Diminished GDP forecast: An extended conflict could reduce India’s GDP growth by around 1%, while inflation could rise by 1.5-2 percentage points due to weakening demand, according to Moody’s. The shock would primarily pass through higher oil import costs, reflecting India’s structural reliance on crude supplies from the Middle East, the ratings agency said. India is among the Asian economies most exposed to oil price volatility, with crude imports accounting for about 3.6% of GDP.

Oil price threshold: The macroeconomic impact would likely remain limited if the conflict is short-lived and crude stabilizes near USD 89 per barrel. Sustained prices above USD 100 per barrel, however, could generate broader macroeconomic pressure.

Transmission channels: Higher energy import costs could weaken the INR , raise inflation, and widen India’s current account deficit, while authorities may expand subsidies to cushion households and businesses.

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