West Asia war: 2026 growth hit, inflation risks rise

Why the West Asia conflict is a macro risk again

The ongoing war in West Asia is already transmitting economic stress through higher oil, gas and fertiliser prices, with spillovers into inflation expectations and financial conditions. World Bank President Ajay Banga told Reuters that the global economy would face a cascading impact even if a ceasefire announced by US President Donald Trump holds. He said the damage would be deeper if the ceasefire fails and the conflict escalates. The warning comes as energy markets react not only to price spikes but also to supply disruptions, shipping constraints and tighter global liquidity.

World Bank baseline vs adverse scenarios for growth and inflation

Banga said global growth could be lowered by 0.3 to 0.4 percentage point in a baseline scenario that assumes an early end to the war. If the war endures, he said the growth hit could be as much as 1 percentage point. On inflation, he said the increase could be 200 to 300 basis points, with a much higher impact of up to 0.9 percentage point if the war continues. The World Bank’s baseline estimate now projects growth in emerging markets and developing economies at 3.65% in 2026, compared with 4% projected in October. Under an adverse scenario with a longer-lasting war, that growth rate could drop as low as 2.6%.

Emerging markets: inflation projections revised higher

The World Bank’s projections also show inflation pressures building across emerging markets and developing economies. Inflation in these countries is now forecast at 4.9% in 2026, up from the previous estimate of 3%. In an extreme scenario, inflation could rise as high as 6.7%, according to estimates viewed by Reuters. Banga also flagged that downside risks were “clearly very elevated” and that the impact of the war would be uneven across countries. The central risk channel remains energy, but the knock-on effects include food inflation concerns due to fertiliser disruption and broader transport cost increases.

Energy shock: oil up 50% and key commodities disrupted

The conflict has pushed the price of oil up by 50% while disrupting supplies of oil, gas, fertiliser, helium and other goods, alongside tourism and air travel. A separate energy market snapshot in the material shows Brent crude rising from $10 per barrel on March 2 to $120 on March 9, a 50% spike in less than a week. The article also notes Brent jumping 6.6% to nearly $108 a barrel on a Thursday during the period of heightened volatility. Supply disruption has been described as severe, with one estimate stating the war has removed about 11 million barrels per day of oil supply from global markets. The International Energy Agency has authorised the release of 400 million barrels from strategic reserves to stabilise supply.

India’s exposure: heavy import dependence and Hormuz chokepoint

India is among the Asian economies most exposed because it is a net importer of oil and gas. The text cites India importing nearly 90% of its crude, half of its liquefied natural gas, and two-thirds of its LPG, with much of it routed through the Strait of Hormuz. Another estimate in the text puts crude import dependence at over 88% and says about 55% of crude comes from West Asia. The Strait of Hormuz is described as a crucial corridor through which 20% of the world’s crude oil passes, and the article says it has been closed with only a few ships allowed through, creating a chokepoint. Analysts cited in the material describe the effective closure as a black swan event for energy markets, with significant impact on crude and LNG flows.

What the price moves look like on the ground

The disruption is visible in the swing in India’s crude costs. The Indian basket of crude oil surged to $157.04 per barrel on March 23 from $12.2 in December 2025, the text says. Crisil Intelligence data cited in the material also points to import cost pressure, noting that in March Brent crude increased to $110 to $120 per barrel, while spot prices of Asian liquefied natural gas nearly doubled to $10 to $15 per MMBtu. The oil price uncertainty index is cited as climbing from 208 in December 2025 to 773.5 in March 2026, nearly four times the December peak. These indicators align with warnings that higher input costs and logistics constraints can keep import costs elevated even when demand begins to moderate.

Fiscal and pricing responses: taxes, duties, and domestic price hikes

The article states that the government has to handle a fiscal burden of nearly Rs 200,000 crore linked to the shock. It also says India has cut fuel taxes as global oil prices surged and imposed export duties to ensure domestic fuel supply and limit price spikes. On household budgets, the text reports an LPG price hike of Rs 60 for a 14.2-kg cylinder. It also says oil companies raised the price of industrial diesel by 25% and increased premium petrol by Rs 2 per litre on March 21. These steps sit alongside the wider debate on how much of the global price shock should be passed through to consumers.

Growth, inflation, and deficit risks: official and private-sector estimates

India’s near-term outlook is described as uncertain, with the finance ministry’s monthly economic review for March citing downside risks from higher input costs and supply constraints. The material includes several scenario-based estimates on macro impact if crude stays elevated. The finance ministry’s internal analysis says crude at $10 per barrel would not have a significant impact, but oil at $130 per barrel for two to three quarters would shave 100 basis points from GDP growth and push up inflation. Chief Economic Adviser V. Anantha Nageswaran told a Parliamentary Standing Committee that at $130 per barrel, CPI inflation could rise towards 5.5%, real GDP growth could decrease from 7.4% to 6.4%, the current account deficit could rise from 1.2% to around 3.2%, and the fiscal deficit could rise from 4.4% to 5.6%. RBI estimates cited say that if crude prices are 10% higher than the baseline with full pass-through, inflation could rise by 30 basis points and growth could dip by about 15 basis points.

Coordination efforts and policy warnings: subsidies and energy mix

Banga said the World Bank was already in discussions with some developing countries, including small island states, about tapping funds from existing programs under “crisis response windows”. But he cautioned countries against setting up energy subsidies they cannot afford, warning that such moves can further deteriorate fiscal space when debt levels are already high and interest rates remain elevated. He said the crisis renewed the focus on diversifying energy supplies and boosting self-sufficiency. The text also notes that the World Bank last June ended a longstanding ban on funding nuclear energy projects, framing it as part of meeting rising electricity needs. Banga argued that scaling nuclear, hydro and geothermal alongside wind and solar can reduce reliance on traditional fuels.

Key numbers to track

Why it matters for Indian markets and listed sectors

A sustained energy shock can raise input costs for transport, manufacturing, fertiliser and food production, all of which feed into margins and inflation. The text points to higher prices for household cooking gas, commercial LPG and aviation turbine fuel, indicating pressure across consumer and industrial demand. Tighter inflation expectations can also raise the prospect of tighter monetary stances and weaker growth, particularly in emerging economies where currencies can weaken during risk-off phases. For India, the combination of import dependence and a shipping chokepoint raises the risk of intermittent supply disruption, not only higher prices. The article also highlights that several agencies have begun scaling down India’s GDP estimates, including Goldman Sachs cutting its 2026 forecast to 5.9% from 7% before the conflict, and Emkay Global trimming its FY27 estimate by 0.4 percentage points to 6.6% while raising inflation and current account deficit estimates to 4.3% and 1.7%.

Conclusion: a test of energy security and fiscal room

The material frames the West Asia war as an energy-led shock with direct implications for growth, inflation and fiscal headroom, especially for import-dependent economies like India. World Bank scenarios show meaningful downside risks even in a baseline where the conflict ends early, and larger hits if it persists. For India, the path of crude prices, the Strait of Hormuz situation, and domestic pass-through decisions will shape inflation and growth outcomes in the coming quarters. Policy coordination is also gathering pace, with the IEA, IMF and World Bank Group forming a joint coordination group to address the fallout. Next signals to watch include changes in shipping flows through Hormuz, further strategic reserve actions, and updated official macro assumptions tied to crude price levels.