The Israel–US conflict with Iran is expected to have significant economic repercussions for India, particularly through surging energy prices. Nearly 60% of India’s energy imports pass through the Strait of Hormuz, making the country especially vulnerable to disruptions in West Asia.

Since the conflict began, crude oil prices have surged about 65% to around $118–$120 per barrel, while global liquefied natural gas prices have jumped by at least 50%. Experts warn that if tensions continue to escalate in the region, India could face a widening trade deficit and rising inflation, driven largely by higher energy import costs.

With over 85% of its crude oil requirement met through imports, India remains highly sensitive to global price movements. A $1 increase in crude prices can expand the country’s current account deficit by nearly $3 billion, adding strain on the fiscal balance and inflation outlook.

“If the situation continues for a longer period, inflation will definitely rise. It can impact the trade deficit and the demand for dollars will increase. Because of that, the rupee will depreciate. It will affect the fiscal system of India,” Vinay K Srivastava, Professor of Finance at ITS Ghaziabad, told Fortune India.

Negative impacts of the war is already visible

Notably, the negative impact of increased oil and LNG prices is already visible as hotel bodies in Bengaluru and Mumbai have announced the shutdown of hotels due to a severe shortage of commercial LPG cylinders.

Analysts cautioned that this is just the start and that this crisis will have adverse effects on Indian business and the economy if it is not ended very soon. India is the second-largest energy importer in the Global South after China.

“If inflation starts rising again, they may have to increase the repo rate once more to address the issue. That will again affect businesses. So if this situation continues for a longer period, it will impact the Indian economy,” Srivastava added.

Downstream businesses are at greater risk

Reports indicate that downstream sectors such as oil marketing companies (OMCs), airlines, tyre makers, paint manufacturers and lubricant suppliers are growing cautious amid rising crude prices.

OMCs may face pressure as higher crude costs squeeze margins, while weak earnings visibility and current valuation levels add to investor concerns.

The aviation sector is particularly exposed, as fuel linked to Brent crude forms a large share of airlines’ operating expenses. Any sustained rise in oil prices could therefore strain margins and limit carriers’ ability to adjust fares in a competitive market.

However, analysts do not see any significant risk at the moment. “Market corrections are a part of the cycle. At this stage, we don’t see significant downside risk left in equities, if clarity emerges. Oil at around $115 per barrel is unlikely to sustain for long, and once prices stabilize, markets should find their footing again,” said Satish Kumar, MD and Head – InCred Research Services.