India’s economic resilience will be tested by the ongoing West Asia conflict which Crisil has termed the “largest energy shock on record”, with risks now extending well beyond oil into gas supply, trade flows, logistics and remittances.

In its latest note, the ratings and analytics agency warns that the conflict — if prolonged — could shave up to 30 basis points off India’s GDP growth in FY27, while also putting pressure on inflation, the current account and the rupee.

Not just oil

The immediate trigger is disruption to energy supplies. Restricted movement through the Strait of Hormuz — which carries about 20% of global oil flows — along with damage to key infrastructure such as LNG facilities in Qatar, has tightened both crude and gas availability.

But the report makes it clear this is not a standard oil shock. The impact is transmitting through multiple channels:

• Energy: Higher crude and gas prices

This broad-based transmission makes the shock more persistent and harder to offset.

Growth, inflation, CAD: What changes in FY27

Crisil’s base case pegs India’s GDP growth at 7.1% for FY27, but in a stress scenario this could drop to 6.8%.

The current account deficit is likely to widen to 2% of GDP from 1.5% due to a higher import bill. Inflation is seen rising to 4.7%, driven by second-order effects of energy costs. Rupee is expected to weaken to an average 92.5/$, and bond yields could harden to 6.9%.

While the government may absorb part of the fuel price shock to shield consumers, Crisil notes that core inflation will still rise via transport, logistics and input costs.

India’s exposure to West Asia

What amplifies the risk is India’s deep economic linkage with the region.

According to Crisil, 40–50% of oil imports come from West Asia, 13% of exports are directed to the region, 38% of remittances originate there and around 8% of FDI inflows are linked to it.

This makes the shock both external and domestic in impact, affecting consumption, trade balances and capital flows simultaneously.

Sectors in the firing line

The impact is expected to be uneven, with energy-intensive and trade-linked sectors most exposed.

• Fertilisers and chemicals: Hit by LNG shortages and input costs

Crisil also flags that LPG supply is particularly vulnerable, given high import dependence and limited buffer capacity.

Buffers exist, but risks remain

India does have some cushions. Strategic oil reserves of about 60 days, diversification of crude sourcing (including Russia), and a strong services surplus offer partial protection.

However, these may only mitigate — not eliminate — the impact if the conflict drags on. Crisil notes that a prolonged disruption could push crude towards $100 per barrel, intensifying pressure on growth and inflation.

The bottom line is that, according to Crisil, this is no longer a short-term oil spike. The West Asia crisis is evolving into a full-spectrum macro shock, with the potential to dent growth, widen external imbalances and delay monetary easing in FY27.