The Iran war has posed the greatest external shock for India since the pandemic. The resulting blockade of the Strait of Hormuz has hit the Indian economy hard. While many countries were still looking at the geopolitical tensions from afar, for India, they are right at its doorstep. India gets 54 per cent of its crude, 60 per cent of its LNG, and over 90 per cent of its LPG via the Strait of Hormuz. Once the access channel to those energy resources became problematic, consequences could not be avoided.

Firstly, oil prices rocketed, from $65-$70 per barrel to $83-$106 per barrel in only a few days. The rupee depreciated below ₹95 per dollar, losing its status as one of the world’s most stable currencies.

Yet, beyond such headline-grabbing developments lie the economic resilience of India due to a slew of swift measures, bold reforms, and policy dynamism to confront the crisis.

Pain points

Indeed, the vulnerability India faces cannot be denied. First, India is the world’s third-largest importer of crude oil. Second, it is the world’s second-largest importer of LPG. Finally, India receives the largest amount of remittances, with 38 per cent of remittances from Gulf countries going to India.

As an example of India’s vulnerabilities, a $10 increase in crude oil prices adds 0.4 per cent to India’s current account deficit. In addition, GDP growth can dip by 40-50 basis points at an average oil price of $100. In the past, such external shocks led to massive capital outflows, currency depreciation, and stock market instability.

Robust fundamentals

One key factor that contributed to India’s economic resilience is the robust macroeconomic fundamentals. Its annual GDP growth rate had been above 7 per cent for the past three years. Private consumption comprised around 61 per cent, with investments accounting for another 30 per cent of the country’s GDP. Forex reserves were at $700 billion, enough to cover around 11 months of imports, while the country’s current account deficit was only 0.8 per cent of its GDP during the first half of FY26.

The second factor is its energy planning and management where it has been able to diversify the energy supply mix and manage the disruptions. One of the key drivers behind this energy planning has been the significantly large share of discounted Russian crude, which made up 35-40 per cent of overall energy imports in FY25. Purchased for $5-10 less than international indexes, it creates a kind of “price cushion effect”.

Energy impact

Thus, while Brent is rising above $95-$100, India pays $85-$90. While this could not completely decouple the economy from the impending price shock, it did provide a vital price cushion. What also helped India were the agreements to purchase LPG from the US accounting for around 10 per cent of the country’s import demand, and alternate sourcing channels — West Africa, the Americas, and Australia, thereby reducing reliance on the Hormuz chokepoint.

Monthly SIP inflows exceeding ₹30,000 crore provided counter-cyclical liquidity, reducing reliance on volatile foreign portfolio flows. Of course, equity markets corrected, and the Sensex fell about 10 per cent, but a decade of domestic financialization and financial literacy is beginning to pay dividends.

Government response

The distinctiveness of India’s response lies in two features: first, resilience and second, the speed and coordination of its policies. To illustrate, for meeting household energy consumption, the government took swift action. Under the Natural Gas Supply Regulation Order 2026, priority for gas supply was given to domestic consumption, while limiting its use for industry. Commercial gas supplies were reduced by up to 50 per cent, thereby protecting 330 million households from shortages.

At the same time, prompt changes in excise duties were used to buffer shocks from global oil price volatility and to protect consumers. By doing so, India gained additional financial maneuverability.

India’s balanced diplomacy was another key element of its response where it ensured case-by-case clearance of Indian oil and LPG tankers passing through the Strait of Hormuz.

The RBI have been playing a pivotal role in maintaining economic stability, pumping about $12 billion over a week to curb rupee volatility. Unlike previous episodes, India did not find itself in a bind between currency stability and growth. Favourable food inflation trends also provided policy flexibility, allowing RBI to avoid rate hikes despite energy price pressures.

Export path

The composition of Indian exports also proved to be a boon in this crisis. Unlike the commodities-rich emerging markets, close to 45 per cent of India’s exports are service-based, valued at approximately $380 billion. Apart from having limited direct exposure to oil prices fluctuations, they benefit from increased demand, owing to geopolitical instability. Companies are trying to digitise their operations, increase cybersecurity spending, and reduce costs, which India specializes in.

Renewable focus

India’s calibrated strategy on energy transition with continued focus on energy security and renewable energy generation have proved to be a shot in the arm for the country during this energy crisis. Over 250 GW non-fossil power installed capacity reduces its dependence on imported fossil fuels such as gas and oil for power generation, in turn, reducing the oil beta of the country’s GDP.

Finally, what the handling of this Middle East shock demonstrates is that resilience does not come in a crisis, but is formed beforehand. For it rests in the forex reserves quietly accrued over the past decade. The building of renewable capacity, coal reserves and output and quiet accumulation of SIP investment were key features of this build-up of resilience.

Sustaining resilience

Nevertheless, once achieved, resilience requires to be sustained. Three things are important. First, the transition to renewables needs to move quickly, not just for environmental reasons but also purely economic grounds to help insulate it from future shocks.

Secondly, there ia a need to diversify the economy from remittances. And lastly, India must not fall victim to the myth of perpetual fiscal freedom created by this shock. It was years of fiscal conservatism that enabled the government to cut excise duties on petro products.

Fiscal headroom must be regained as soon as oil prices stabilize to create another cushion for future shocks.

The crisis in West Asia is a real test for India’s resilience. In an increasingly volatile global environment, such structural resilience may prove to be one of India’s most important economic advantages.

Jindal is a Senior Energy Economist; Agarwal is Assistant Professor, Faculty of Management Studies

Published on April 14, 2026