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West Asia conflict’s economic impact may linger till 2027: Finance ministry

From Hindustan Times · () English

Summarized and contextualized by DistantNews.

At a glance

News Official statement Context piece
  • The West Asia conflict's economic impact may persist until late 2027, even if shipping through the Strait of Hormuz normalizes by June, according to India's finance ministry.
  • Elevated energy prices, supply-chain pressures, and financial market volatility are expected to continue globally in the near term.
  • India's external position, with modest current account deficit and strong foreign exchange reserves, offers resilience, though rising input costs are beginning to affect the domestic economy.

India's economy could feel the ripple effects of the West Asia conflict until late 2027, even with a potential normalization of shipping through the Strait of Hormuz by June. The Union finance ministry informed a parliamentary committee that restoring pre-conflict production and trade patterns will likely take until late 2026 or early 2027. This means elevated energy prices, supply-chain disruptions, and financial market volatility are expected to persist globally.

Even if shipping flows through the Strait of Hormuz begin to normalise in late May or June, the restoration of pre-conflict production and trade patterns may extend well into late 2026 or early 2027. Thus, elevated energy prices, supply-chain pressures and financial market volatility are likely to remain in the global economic landscape in the near term.

— Union finance ministryExplaining the projected timeline for economic recovery from the West Asia conflict's impact.

The ministry highlighted that the global economic outlook remains heavily dependent on developments in the Strait of Hormuz and the speed at which the region's energy infrastructure can be repaired. While India imports most of its crude oil from outside the Gulf region, the conflict's impact is becoming increasingly visible domestically. This includes rising energy prices, inflationary pressures, and tighter financial conditions.

The extent of their (conflict) impact in the near term, however, would depend critically on the strength of domestic macroeconomic fundamentals and the policy buffers available to absorb external shocks.

— Union finance ministryAssessing the factors that will determine the severity of the conflict's impact on India.

Despite these global challenges, India's economic fundamentals provide a buffer. The current account deficit remained modest at 1.1% of GDP in FY26, supported by steady export growth. Foreign exchange reserves stood at a robust US$681.4 billion as of May 22, 2026, offering about 10.5 months of import cover. However, the ministry acknowledged that global developments are starting to transmit into India's economy, primarily through rising input costs. India's crude oil basket price surged from US$63.1 per barrel in January 2026 to US$106.8 in May 2026, impacting inflation, the current account, and public finances. Global prices for fertilizers and industrial inputs have also increased.

The most immediate channel through which global developments are being transmitted to the domestic economy is through rising input costs.

— Union finance ministryIdentifying the primary way global economic shifts are affecting India.
DistantNews Editorial

Originally published by Hindustan Times. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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