The ongoing West Asia conflict and disruptions in the Strait of Hormuz are emerging as a major risk for the Indian economy, with elevated crude oil prices likely to pressure inflation, the rupee, and the current account, according to a report by Union Bank of India.
The report titled "From Hormuz to the Rupee: War, Oil and the Global Repricing of Risk" said that with the Strait of Hormuz "still functionally shut and Brent trading above $100/bbl, the backdrop does not bode well for global or domestic macros and markets."
It added that "higher oil keeps inflation risk alive, delays central-bank easing, pressures current accounts, tightens financial conditions, and weighs on risk assets, especially in energy-importing economies," underlining the vulnerability of countries like India.
For India, which imports nearly 85 per cent of its crude oil, the impact is already visible. The report noted that the disruption in Hormuz flows has pushed oil prices above $100 per barrel, translating into a visible "energy tax" on the economy.
"As the escalation of the Iran-Israel conflict disrupted flows through the Strait of Hormuz, pushing Brent crude oil above $100/bbl... this translated into a visible 'energy tax,' with the rupee sliding to record lows near 95 and equities correcting on CAD and imported inflation concerns," the report said.
Rupee slides, RBI steps in
The Indian rupee has remained under pressure amid these global headwinds. The report highlighted that the currency "exhibited a modest depreciation bias... as strong global dollar momentum, intermittent capital outflows, and elevated geopolitical uncertainties outweighed otherwise resilient domestic fundamentals."
Amid the pressure, the Reserve Bank of India (RBI) has stepped in to stabilise markets. The report noted that the central bank has taken multiple measures, including tighter forex exposure caps and liquidity support, while maintaining its policy stance."The RBI's Monetary Policy Committee (MPC)... maintained the policy repo rate unchanged at 5.25 per cent, while reiterating the neutral stance," it said, adding that the central bank remains ready to act in case of excessive volatility.
On the external front, India's trade balance has shown some resilience. The report said the merchandise trade deficit narrowed to $20.7 billion in March 2026, supported by lower bullion and energy imports.
However, risks remain elevated. The report warned that if disruptions persist, "Brent is likely to hold in the $100-110 range, risking fuel price pass-through and CPI drifting above 4 per cent."
It also highlighted the sensitivity of India's macro indicators to oil prices, noting that "every $10/bbl move in oil price" can significantly widen the current account deficit and push inflation higher.
What lies ahead?
Looking ahead, the rupee is expected to remain range-bound but with a weakening bias. "The INR is likely to trade with a mild depreciation bias... as elevated Brent crude oil prices, evolving geopolitical risks, and a firm United States dollar offset relatively stable domestic fundamentals," the report said.
The report concluded that the outlook for India will largely depend on how the West Asia conflict evolves, with oil prices and global financial conditions remaining the key triggers for the domestic economy.
Published on April 26, 2026