India's economic growth faces mounting risks as Middle East tensions escalate, threatening oil supplies to the world's third-largest consumer. The US-Israeli strikes against Iran have triggered a 13% surge in Brent crude prices to $82 per barrel, raising concerns about inflation and trade balances. Economists warn that sustained high prices could derail India's recovery trajectory.

State-owned oil retailers have maintained retail fuel prices since March 2024, absorbing recent price spikes through existing margins. The Reserve Bank of India estimates that a 10% increase in crude prices could reduce growth by 15 basis points and push inflation up 30 basis points. A weaker rupee, already down 5% in 2025, compounds these pressures.

India's foreign exchange reserves of $725.7 billion provide a substantial buffer, covering nearly a year of imports. However, economists caution that a $10-per-barrel increase sustained for a year could widen the current account deficit by 0.4% of GDP. The Federation of Indian Export Organizations warns that disrupted shipping routes could add 15-20 days to transit times, further straining supply chains.