India faces rupee, inflation risks from West Asia energy disruption: Moody’s

India could face pressure on the rupee, rising inflation and a widening current account deficit if the escalating conflict in West Asia disrupts energy supplies and pushes up crude prices, according to Moody's Ratings. 

In a note assessing the impact of potential oil supply shocks from a prolonged regional conflict, Moody’s said India remains among the most exposed large Asian economies because of its heavy dependence on crude oil and liquefied natural gas (LNG) imports from the Middle East. “India stands out among the large Asian economies that rely on crude and LNG from the Middle East,” the rating agency said. 

India imports around 46% of its oil and natural gas requirements from the region. Supplies have come under pressure amid the widening conflict in West Asia, which has disrupted shipping through the Strait of Hormuz, a critical route for crude oil and LNG exports. 

“Costlier energy imports would weaken the rupee, raise inflation, worsen the current account balance and complicate monetary policy as well as fiscal management if they lead to expanded subsidies to offset the economic shock,” Moody’s said. 

Why Strait of Hormuz is a key risk point 

Moody’s said the ongoing conflict poses significant risks to the global economy, particularly if it leads to a prolonged disruption in energy markets. The Strait of Hormuz remains a major vulnerability for global energy flows, serving as a vital shipping route for crude oil and LNG. 

While infrastructure damage in the region has so far been limited and global energy inventories offer short-term buffers, shipping through the strait has largely stalled and some regional ports have suspended operations, disrupting oil and LNG trade. 

“But a prolonged disruption in navigation through the Strait of Hormuz, beyond our baseline of a few weeks, would likely trigger sustained supply shortages, prices averaging higher than $100 per barrel for Brent crude, higher inflation, tighter financial conditions and slower global growth,” Moody’s said. 

Energy-importing regions in Asia and Europe would face the most immediate pressure if Brent crude rises above $100 per barrel. 

The rating agency noted that large crude inventories and advance shipments by Gulf producers could cushion the impact for the next few weeks. However, the conflict remains fluid, raising risks of further regional escalation and potential disruptions to global energy security and market stability. 

Is short disruption manageable for India 

Under its baseline scenario, Moody’s expects the conflict to be relatively short-lived, allowing navigation through the Strait of Hormuz to resume soon. 

In such a case, Brent crude prices are expected to average between $70 and $80 per barrel in 2026, only slightly higher than the $69 per barrel average in 2025. This would limit the broader impact on global growth. 

“We frame our analysis with two main scenarios, ranging from a baseline case with short-lived disruption to a more prolonged and disruptive adverse scenario,” Moody’s said. 

If the conflict remains contained, the resumption of safe navigation through the Strait of Hormuz could lead to a swift easing of supply restrictions. 

However, Moody’s warned that a prolonged disruption pushing Brent crude prices above $100 per barrel would significantly strain energy-importing regions, particularly Asia and Europe. 

Higher energy costs would push up consumer prices and production expenses globally, eroding household purchasing power and weighing on business investment. 

Persistent inflationary pressures could also force major central banks to maintain higher interest rates, tightening financial conditions and slowing global economic growth. 

“Our adverse scenario considers sustained crude prices of $100 per barrel and higher, exacerbating energy security concerns and economic strain amid prolonged disruptions to energy supply from the region,” Moody’s added.