Escalating conflict in the Middle East is predicted to result in minimal rupee depreciation and growth disruption, as per a report by asset management firm Shriram Wealth. The report suggests that a 10% increase from the RBI’s baseline crude oil price assumption could lead to a 30 bps inflation rise but have only a slight negative effect on the rupee and growth. Furthermore, a 5% rupee depreciation might elevate inflation by 35 bps but could contribute 25 bps to GDP growth, the report added.
The firm anticipates that any depreciation in the Indian Rupee (INR) is likely to be limited due to RBI’s foreign exchange intervention. It also mentioned that the resolution of ongoing tensions could aid in stabilizing the local currency. Based on these projections, the report highlights the constrained upside risks of oil prices on domestic inflation and growth prospects.
The Reserve Bank of India (RBI) had set a baseline assumption of $70 per barrel for crude oil in H2FY26, with the INR at 88 per dollar. However, the Indian crude basket averaged $65, with the spot INR at 89.5 during the second half of FY26, according to the report. India’s overall macroeconomic indicators, including forex reserves surpassing $700 billion, manageable trade and current account deficits, low inflation and interest rates, and controlled fiscal deficit, position the economy strongly, providing resilience, the report emphasized.
Industries reliant on crude oil inputs like chemicals, paints, pharmaceuticals, airlines, tires, and oil marketing companies (OMCs) might encounter margin pressures. Conversely, companies with significant exposure to the Middle East could face operational and earnings challenges. The defense sector is expected to benefit from an upturn in sentiment amid increasing global defense expenditures. Moreover, any further escalation in conflict is likely to bolster gold and silver prices in the short term, which would be advantageous for gold and silver ETF investments.
Approximately 9 million Indians reside in the Middle East, contributing 38% of remittances, with the region representing 15% of India’s exports and 21% of imports.
