India inflation risks rise as crude nears $113 in 2026

CEA flags fresh inflation risks from the Iran-US conflict

India’s inflation outlook has come under fresh pressure as global crude oil and commodity prices rise amid the Iran-US war. Chief Economic Advisor (CEA) V. Anantha Nageswaran said the shock is not limited to fuel prices and could lift production costs across a wide set of critical inputs. Speaking at the US-India Economic Forum 2026 in Washington, he said policymakers will need to manage inflation risks without undermining growth. India enters this phase with relatively strong macroeconomic fundamentals, but its dependence on imported energy makes it vulnerable to prolonged global price spikes. The warning comes as markets assess how quickly energy supply chains can normalise even if the conflict eases.

“Not purely about oil”: the broader commodity channel

Nageswaran underlined that the inflation impulse can come from multiple commodities, not just crude. He pointed to key inputs such as petrochemicals, fertilisers, and gas, all of which feed into agriculture and industry. Higher prices in these categories can raise operating costs for businesses and eventually pass through to consumer prices. He also noted that 2025-26 had been a year of benign inflation, which means any new commodity shock has to be factored into macro outcomes. The CEA’s remarks reflect concern about second-round effects, where a supply shock can start affecting broader pricing behaviour across sectors.

India’s landed crude cost jumps to $113 in March

India’s landed cost of crude oil rose sharply in recent weeks, touching about $113 per barrel in March, with April still elevated near $110. Nageswaran said that even if markets anticipate some correction, prices may remain well above the $10-65 per barrel range seen in recent years. He suggested that an average closer to $10 per barrel could be a more realistic assumption in the current environment. The message was that India may need to plan for higher-for-longer energy costs rather than a quick return to pre-conflict norms.

Why energy markets may not normalise quickly

A key uncertainty flagged by the CEA is the gap between a ceasefire and the restoration of normal operations in energy markets. He said it is one thing for conflict to end but another for “restoration of normalcy” to follow quickly. This matters for India because higher import bills can affect both fiscal and external balances. Even if GDP growth remains steady, a larger import bill can widen deficits and complicate policy trade-offs.

RBI flags five risks from the war

The Reserve Bank of India (RBI) has also signalled caution. Governor Sanjay Malhotra flagged five key risks linked to the US-Iran war:

1. a widening current account deficit (CAD) due to a higher import bill,
2. the threat of imported inflation,
3. disruptions to energy and commodity supply chains,
4. potential stress on exporting businesses, and
5. a possible reduction in foreign remittances. The RBI’s message, as described in the report, is that India may be better positioned than in past episodes, but a prolonged conflict could convert a supply shock into a broader demand shock.

Inflation math: what economists are watching

With crude prices hovering above $100 per barrel, economists have warned of higher pass-through risks to consumers. One scenario highlighted is that India’s retail inflation could move past 5% in FY27, compared with a base case of around 4.3%. Recent data points already show sensitivity, with February retail inflation at 3.2%, a 10-month high. The report also notes an RBI-style rule of thumb: a 10% rise in crude could raise CPI inflation by 30 to 60 basis points, assuming full pass-through to domestic product prices. These estimates frame why policymakers may face tougher choices on rates and liquidity if oil stays elevated.

Growth outlook: agencies start trimming forecasts

Higher oil and commodity prices complicate the growth picture through costs, trade, and household purchasing power. Goldman Sachs revised its FY27 GDP growth projection to 5.9%, citing the combined impact on imports, exports, and remittances. State Bank of India research suggested that if oil averages $130 per barrel, GDP growth could fall to 6.0%. Separately, the CEA has warned of “considerable downside” risk to India’s FY27 growth projection of 7-7.4% if the war persists, even as India’s growth rate for the current fiscal is estimated at 7.6%.

Scenario analysis: what $130 oil could do to key balances

Nageswaran told a Parliamentary Panel that crude at up to $10 per barrel would not have a significant impact, but $130 per barrel for two to three quarters could materially change macro outcomes. He said CPI inflation could rise towards 5.5%, while real GDP growth could fall from 7.4% to 6.4%. He also projected the current account deficit could widen from 1.2% to around 3.2%, and the fiscal deficit could rise from 4.4% to 5.6%. The CEA stressed that the impact depends on both the level of prices and how long they persist.

External stress points: rupee, remittances, and trade routes

Currency and external accounts are central to the risk narrative because oil is paid for in dollars. The conflict has put pressure on the rupee, which is described as nearing the 93-per-dollar mark, with some analysts warning it could weaken to 98. MUFG analysts estimated that oil at $100 per barrel could push USD/INR above 95. Remittances are another watch point, with Gulf economies accounting for about 38% of India’s total remittances in FY24, or around $15 billion. India also imports around 87% of its crude oil requirement, and about 46% of that transits through the Strait of Hormuz, underlining the trade-route sensitivity.

Conflict duration: how risks can evolve over time

The report lays out how the impact could change if the conflict drags on, moving from a largely financial shock to more structural shifts.

Key facts and figures mentioned

Why this matters for India’s policy choices

The common thread across the CEA and RBI warnings is that imported energy shocks can spill into inflation, external balances, and fiscal math at the same time. Higher fertiliser, petrochemical, and gas prices can widen cost pressures beyond transport fuels and affect food and manufactured goods. With the rupee under pressure and CAD risks rising, policymakers may need calibrated responses that balance inflation control with growth support. The Finance Ministry’s monthly review also points to preparedness measures, including ensuring domestic energy availability and mitigating inflation pressures, while assuming a gradual return to “business as usual” in the Gulf.

Conclusion

India’s inflation and growth outlook is facing renewed uncertainty as crude and commodity prices rise in the wake of the Iran-US conflict. With landed crude costs near $110-113 and risks to CAD, the rupee, and remittances, policymakers are focused on containing inflation without disrupting growth. Upcoming April and May data, as flagged in the economic review, are expected to offer clearer signals on how deeply the external shock is feeding into domestic activity and prices.