West Asia crisis triggers ‘largest energy shock on record’; Crisil cuts India’s FY27 growth outlook

The ongoing West Asia conflict has triggered the “largest energy shock on record” and begun materially impacting India’s economy, Crisil Intelligence said in a report on Monday, warning that higher oil prices and supply disruptions could slow growth and push inflation higher in FY27. 

“The downside risks to the economy have begun materialising with over two months of unresolved West Asia conflict. The closure of Strait of Hormuz has created the largest energy shock on record,” the report said.  

It added that the impact “will take time to normalise because of the damage to oil and gas infrastructure in West Asia — even after the route reopens.” Against this backdrop, Crisil revised its Brent crude oil forecast upwards to $90-95 per barrel for FY27 from its earlier estimate of $82-87 per barrel.  

The agency said the shock extends “beyond energy to freight and insurance costs, supply chains, and fertilisers”, creating a “multidimensional impact on the economy.” 

India’s real GDP growth to slow to 6.6% 

Reflecting these pressures, Crisil expects India’s real GDP growth to slow to 6.6% in FY27 from 7.6% in FY26. It also projected consumer price inflation to rise sharply to an average of 5.1% in FY27 from 2% last fiscal. 

“The spike in crude and natural gas prices, coupled with global supply chain disruptions are expected to hit growth — particularly manufacturing that is heavily import dependent,” the report said. It added that weaker global demand and trade disruptions would further weigh on exports. 

Rising global energy prices to raise domestic fuel prices 

On inflation, Crisil said persistent increases in global energy prices could eventually push up domestic fuel prices for cooking and transportation. “A sharp rise in energy and other input costs, as well as those for trade and transportation, is expected to be passed by producers to consumers, raising core inflation,” it noted. 

The report also flagged risks to India’s external balances, projecting the current account deficit to widen to 2.2% of GDP in FY27 from an estimated 0.8% in the previous fiscal on rising import bill and weaker exports.