US-Iran war may have severe economic impact on India
What's the story
Moody's Analytics has warned that India could be one of the worst-hit economies in the Asia-Pacific region if the ongoing Middle East conflict continues. The country's output could fall by nearly 4% from its baseline trajectory, according to the assessment. The report highlights India's vulnerability due to its heavy dependence on oil and gas imports from Gulf economies embroiled in the conflict.
Economic impact
Conflict's impact on Asia-Pacific economies
The ongoing conflict and subsequent rise in energy prices are expected to have a domino effect on India's economy. This could lead to higher inflation, larger trade deficits, and reduced consumption. "India and China face sizeable damage given their dependence on oil and gas imports from Gulf economies caught up in the conflict," Moody's Analytics said in its latest Asia-Pacific outlook.
Regional impact
Prolonged conflict could slow down Asia-Pacific growth
The report also warns that a prolonged conflict, especially one that leads to a sharp spike in oil prices, could significantly dent growth across the Asia-Pacific region. The region's growth is already expected to slow down from 4.3% in 2025 to 4% in 2026, with further moderation likely thereafter. This slowdown will be compounded by India's relatively limited energy buffers compared with developed Asian economies relying more on strategic reserves.
Growth outlook
India's growth projections amid potential challenges
Despite the potential economic challenges posed by the conflict, India is expected to remain the fastest-growing major economy. Moody's projects a growth rate of 7.5% in 2026, down from 7.8% in 2025, and further slowing to around 6.5% in 2027. The report also notes that inflation is likely to remain broadly anchored around the Reserve Bank of India (RBI)'s target of 4%, although risks remain tilted toward the upside if commodity prices continue to rise.