US-Iran war may hit India's remittances, currency, and fiscal balance
What's the story
The ongoing conflict in West Asia could put pressure on India's remittances, currency stability, and fiscal finances. This is due to the disruption of economic flows with the Gulf region. The warning comes from a report by SBI Funds Management titled "2026 Middle East Conflict and Its Implications." The report highlights that apart from rising crude prices, India's external sector and fiscal balances could be impacted through various channels.
Remittance concerns
Gulf remittances to India may slow
A major concern flagged by the report is a potential slowdown in remittances from the Gulf region. The area accounts for a significant portion of funds sent home by overseas Indians. "Remittance inflows are also likely to be affected, as about 38% of total inward remittances originate from the Middle East, half of which come from the UAE alone," it noted.
CAD impact
Rising crude could widen India's CAD
The report also warns that high crude prices could widen India's current account deficit (CAD). It estimated that "every US$10/bbl rise in crude price widens the annual CAD by US$15 billion." In a scenario where crude stays close to $100 per barrel for a long time, the deficit could widen sharply by $70 billion, according to SBI Funds Management.
Currency concerns
Rupee could weaken toward ₹96
The report also warns that pressure on the external sector could spill over to the currency market. It said that if foreign investment flows remain volatile, the rupee may weaken further. "If FII inflows fail to revive, the rupee will remain vulnerable to global shocks," it said. The current exchange rate of ₹93 per US dollar could rise toward ₹96 per US dollar in two quarters, according to SBI Funds Management's projections.
Subsidy strain
India's fertilizer subsidy may rise
The ongoing conflict in West Asia could also increase the subsidy burden on the Indian government, particularly in the fertilizer sector. "Global fertilizer prices have risen sharply, with urea now almost 50% higher since December 2025," the report said. It warned that if costs remain elevated, the government's fertilizer subsidy bill could rise significantly beyond budgeted amounts.