Rising crude prices and acute LPG shortages as the war in Iran drags on are weighing on the Indian economy, disrupting industries and prompting analysts to cut growth forecasts while warning of rising inflation.
India is one of the economies most affected by the West Asian crisis as it imports about 90% of its crude oil and about half of its liquefied petroleum gas. Nearly half of its crude oil and more than three-quarters of LPG imports pass through the Strait of Hormuz, which is now effectively closed by Iran, sending oil prices above $100 a barrel.
The disruption has led to LPG shortage in homes, hotels and restaurants, while gas-dependent industries are shutting down operations. The shortage is raising concerns of a sharp recession in Asia’s third-largest economy, just as it was recovering from the pandemic.
Economists from banks including Goldman Sachs Group, Australia and New Zealand Banking Group and IndusInd Bank Ltd. expect slower GDP growth due to dependence on imported oil. Goldman Sachs last week cut its 2026 growth forecast by half a percentage point to 6.5%, while ANZ estimates expansion will slow to 6.5%-6.8% from about 7% in the fiscal year starting in April. IndusInd Bank’s Gaurav Kapoor sees a 30-basis-point blow to growth of about 6.5% and warns that weak consumption could weigh on the recovery.
“The overall impact on growth will be even more depressing than inflation,” Kapoor said. “The government has enough fiscal space to absorb the hit to oil prices due to excise duty cuts, but the hit to the industrial sector will weigh on growth.”
The conflict thousands of miles away is already affecting daily life in India.
LPG shortage in India
Food delivery driver Satyabhan Singh, 35, says his daily income has dropped by more than half to almost ₹Rs 800 due to increase in fuel cost. he spends now ₹300-400 per day on petrol, meaning any increase in pump prices could wipe out whatever little he earns.
“The government should make some arrangements for us,” Singh said. “When there is no gas, they must make sure we can still earn enough to survive.”
Gig work such as food delivery has become one of India’s fastest growing sources of employment, with the workforce growing from 7.7 million in March 2021 to nearly 12 million by March 2025, an increase of 55%, according to the government’s Economic Survey.
Gas rationing is disrupting key industries, from fertilizers and aluminum to helium used in semiconductor manufacturing, raising the risk of a prolonged halt to growth.
“All heating furnaces use LPG and given the shortage and restrictions on industrial use, factories have been closed,” said Pankaj Chaddha, president of the Engineering Exports Promotion Council. “About 98% of engineering companies are closed in Gujarat, while almost half the units in Maharashtra have closed.”
India’s ‘Goldilocks’ economy
Before the Iran War, India’s economy seemed to be in good shape. The central government has projected GDP growth for FY27 to remain at 7.2%, while inflation was expected to remain close to the Reserve Bank of India’s 4% target until at least September.
RBI Governor Sanjay Malhotra had described the scenario as a “Goldilocks” scenario, in which interest rates are likely to remain unchanged for an extended period. The external sector has performed relatively well recently, although rising oil prices and the widening trade deficit and current account deficit are emerging risks.
“The external sector has emerged as the most at risk in this crisis,” said Anubhuti Sahay, economist at Standard Chartered PLC. “Although the import cover is still around 10 months, the rupee will have to act as a shock absorber.”
India’s import-export mathematics
Exports could suffer as the disruption of shipments worth about $200 billion to Gulf countries will potentially widen the current account deficit and put pressure on the rupee, which is already at a record low of around 92.5 per dollar. The region is also important for remittances, with about 10 million Indian workers sending home about $50 billion annually.
Economists have warned that a rise in inflation could undo years of RBI efforts to bring price rises under control last year. The central bank expected retail inflation to remain close to its 4% target until at least September.
🔗 Number Theory: How markets fared during the 18-day war
“The ripple effect will be felt on industries including restaurants and manufacturing units dependent on liquefied petroleum gas,” said Shumita Deveshwar, chief economist at GlobalData.TS Lombard. He said inflation could rise to around 6% by September or October.