Surging crude oil prices and acute LPG shortages are rippling through the Indian economy as the Iran war drags on, disrupting industries and prompting analysts to cut growth forecasts while warning of rising inflation.
India is among the economies most exposed to the West Asia crisis as it imports about 90% of its crude oil and nearly half of its liquefied petroleum gas. About half of its crude and over three-fourths of LPG imports pass through the Strait of Hormuz, now effectively shut by Iran, pushing oil prices above $100 a barrel.
The disruption has triggered an LPG shortage across households, hotels and restaurants, while industries that rely on gas are shutting down operations. Economists at banks including Goldman Sachs Group, Australia and New Zealand Banking Group and IndusInd Bank Ltd. expect slower GDP growth due to reliance on imported oil.
Goldman Sachs last week cut its 2026 growth forecast by half a percentage point to 6.5% while ANZ sees expansion slowing to 6.5%-6.8%, in the fiscal year starting April from about 7%. IndusInd Bank's Gaurav Kapur sees a 30-basis-point hit with growth at around 6.5% and warns weaker consumption could weigh on the recovery.
The conflict thousands of miles away is already affecting daily life in India. LPG shortage in India has led to a sharp decline in the income of food delivery drivers, with some seeing their daily income fall by more than half.
Gas rationing is disrupting key industries, from fertiliser and aluminium to helium used in semiconductor manufacturing, raising the risk of a prolonged drag on growth.
India's 'Goldilocks' economy, which appeared to be in a sweet spot before the Iran war, is now at risk. The central government projected a GDP growth rate of as much as 7.2% for FY27, while inflation was expected to stay close to the Reserve Bank of India's 4% target at least until September.
