India resilient to oil shock, but growth may slow if crude hits $130: S&P Global Ratings

India’s strong macroeconomic fundamentals and a resilient financial sector are expected to cushion the impact of a sustained spike in oil prices, though economic growth could slow by up to 80 basis points if crude averages $130 per barrel in 2026, according to S&P Global Ratings. 

Under its stress scenario, the agency estimates corporate EBITDA could decline by 15–25% in FY27while leverage may rise by 0.5x–1x. Banking sector asset quality could also weaken, with gross non-performing assets (NPAs) rising to around 3.5%. 

“India is not immune to shocks emanating from the Middle East conflict. Elevated energy prices and supply disruptions could persist for months, weighing on households, corporates and banks,” S&P said in its report. 

Stress scenario assumptions 

S&P’s stress case assumes Brent crude at $130 per barrel in 2026 and $100 in 2027, compared with its base case of $85 and $70, respectively. Despite the downside risks, the agency does not foresee any immediate impact on India’s sovereign rating, though fiscal consolidation efforts could face temporary pressure. 

Higher oil prices are likely to widen the current account deficit, with estimates suggesting that every $10 per barrel increase could expand the gap by about 0.4 percentage points of GDP. The Indian rupee may also face depreciation pressures due to a higher import bill and risk-off sentiment. 

Transmission of oil shock 

The report warns that an energy shock would transmit across the economy through higher input costs, compressed corporate margins, rising inflation and potential fiscal strain if the government increases subsidies. Supply disruptions, particularly in fuel and petrochemicals, could further weigh on growth. 

Sectors such as chemicals, refining and aviation are expected to be the most exposed, while infrastructure and utilities may remain relatively resilient. 

Buffers remain strong 

Despite these risks, India entered 2026 with strong growth momentum, resilient domestic demand and relatively low inflation, which should help absorb near-term shocks. 

S&P highlighted that improved corporate balance sheets, deleveraging over recent years and stronger banking sector health would help limit systemic stress. Indian banks, supported by strong capital buffers and low NPAs, are well positioned to absorb potential shocks, although credit costs could rise modestly and profitability may come under pressure in FY27. The country’s external position is also seen as a key buffer, enabling it to manage a higher import bill without immediate rating implications for the sovereign, corporates or banks. 

Overall, S&P said India is equipped to withstand a period of elevated oil prices and supply disruptions. However, a prolonged shock could pose broader risks to economic growth, fiscal stability and external balances.