With signs that the war among the United States, Israel, and Iran will drag on, warning lights have come on for India's fast-growing economy.
On the 22nd (local time), the New York Times (NYT) highlighted the possibility that India could emerge as the biggest victim as the Middle East war enters a protracted phase. The close economic ties with the Middle East that had powered growth are turning into a weakness, rapidly shaking energy and price stability.
India had been projected to leap into the ranks of the world's major economies on the back of persistently high growth in recent years. Last year, India's National Institution for Transforming India, citing a report released by the International Monetary Fund (IMF), projected that India's economic growth rate would reach 6.2%, with nominal gross domestic product (GDP) at about $4.18 trillion (about 6,333 trillion won). By GDP, that slightly surpasses Japan's nominal GDP, which ranks fourth in the world after the United States, China, and Germany.
In particular, economic cooperation with Gulf countries, along with skilled labor, fiscal soundness, and solid foreign reserves, has served as a powerful engine supporting India's growth. Early this year, India signed a $3 billion liquefied natural gas (LNG) supply deal with the United Arab Emirates (UAE), agreeing to double bilateral trade by 2032, and also pursued a Comprehensive Economic Partnership Agreement (CEPA) with Saudi Arabia. That is why India could be seen as a stable investment destination amid U.S. President Donald Trump's indiscriminate tariff policy and the Russia-Ukraine war.
However, with the Middle East war erupting on the 28th of last month, this cooperative posture is simultaneously triggering India's structural vulnerabilities, shaking the economic foundation, according to assessments. India relies on imports for about 90% of its total crude consumption, sourcing about 40% of crude imports and about 80% of natural gas imports from the Middle East, and experts warn that problems arising from this economic structure could deal a heavy blow across the economy.
As energy supply and demand face disruptions, the burden on ordinary households is becoming visible first, with some regions experiencing shortages of household gas. Since the oil shocks of the 1970s, India has heavily relied on crude shipments through the Strait of Hormuz in southern Iran, but with the strait effectively blocked, international energy prices are hitting new highs day after day. As of the day, Brent crude futures, the global oil benchmark, jumped intraday to $114.35 per barrel, up about 62% from just before the war.
Concerns over an export slowdown are also growing. The Middle East is a key market for India, as corporations have used logistics hubs such as Dubai to export electronics, textiles, jewelry, and rice worldwide. In fact, about $50 billion worth of Indian products are exported to the UAE annually, and about half of that is reportedly re-exported to Pakistan, Afghanistan, and Africa.
Just before the war broke out, the Indian government signed a joint statement to launch free trade agreement (FTA) talks with the six Gulf Cooperation Council (GCC) countries—Saudi Arabia, the UAE, Qatar, Oman, Bahrain, and Kuwait—but with sea and air trade routes blocked, the outlook for expanding exports has darkened.
In this scenario, balance of payments instability is also cited as a risk factor. Latin Roy, an economics professor at the Gandhi Institute of Technology and Management, said, "With the Gulf crisis, India's import expense will rise while exports take a hit," warning, "In the worst case, foreign exchange reserves could fall to half within a year."
A potential decline in remittances is also emerging as a major risk. India is the world's largest recipient of remittances, which last year totaled about $130 billion, roughly matching its annual crude import bill. About 40% of that is sent by Indian nationals living in the Gulf region, and if the local economy contracts, their income could fall, likely leading to a weaker rupee and softer domestic demand.
Talmiz Ahmad, a former Indian diplomat, said, "Indian corporations are entangled in almost every project in the Gulf," adding, "India's exposure to the Middle East economy, including infrastructure and energy projects, will be overwhelming."
Global financial markets are rapidly pricing in the risks. Goldman Sachs warned in a recent report that India could face the triple burden of ▲ slower growth ▲ higher prices ▲ weaker currency over the next year, assessing that "the previously 'positive growth story' faces 'new headwinds.'" India's stock market has fallen about 10% over the past month.
In response, the Indian government is moving in the short term to stabilize prices. Prime Minister Narendra Modi is expected to adjust fuel prices ahead of April state elections, and the government is also said to be pursuing supply stabilization measures, including expanding imports of Russian crude and, through talks with Iran, securing safe passage for two gas carriers.
However, if oil fails to fall below $100 per Barrel, expanded fiscal expenditure combined with reduced tax revenue could quickly exhaust policy space, raising concerns. Australia's ANZ Bank said, "India's economy has a strong starting point of high growth and low inflation, but its ability to withstand a prolonged energy shock will be tested," assessing that "oil corporations, the government, and household alike lack sufficient financial buffers to endure a long-lasting oil price shock."