India is unlikely to face any significant economic fallout from the renewed Iran-US tensions as the risk of a severe El Niño-induced drought has eased, energy supplies have become more diversified beyond the Strait of Hormuz, and the country has built resilience to manage external disruptions, a top government official told FE. While discounts on Russian crude may narrow, India is expected to sustain economic growth and mitigate fiscal pressures with adequate access to oil supplies, the person said, requesting anonymity.
“The (crude oil) basket today consists of such diversified sources, just Hormuz won’t hurt us,” the person said, adding that India now knows much better “how we can get our ships through” even during periods of geopolitical uncertainty.
The assessment comes amid fresh concerns over tensions in West Asia and their potential impact on global energy markets. The policymaker maintained that the Indian economy remains well-positioned to absorb external shocks and sustain economic growth.
While acknowledging that Russia may reduce the steep discounts it had offered on crude in the past, the official said India still continues to benefit from its cheaper supplies. The policymaker also downplayed the possibility of oil prices returning to the sharp spikes witnessed during earlier phases of the conflict.
Energy De-Risking
The fresh West Asia conflict pushed the rupee to around 96.3 per US dollar on Frid and lifted Brent crude to about $88 a barrel. The recent RBI measures to step up forex inflows through FCNR(B), ECB and OFCB routes, with inflows of around $80 billion expected by September, should support the rupee and forex reserves.
The crude oil price spiked to near $120 per barrel after conflict broke out on February 28, 2026, before coming down to around $70/barrel after a temporary truce was announced in early June. However, it is unlikely to rise again to the level of near $120/barrel, due to improvement in supplies and reduction in reliance on Hormuz. Similarly, fertiliser prices, especially urea which was nearly halved in June, is uniikely return to the highs. The urea prices continue to be less than half the contracted rates of $935-959 per tonne discovered in April.
Domestic Resilience
On the domestic front, the policymaker said the easing fears of a severe El Nino event has significantly reduced one of the biggest risks facing the economy this year. Although the monsoon remains uneven, the overall rainfall situation has improved, and sowing has progressed satisfactorily.
“That overall fear of the entire country bleeding in drought, that’s gone,” the policymaker said, noting that catchment areas are also receiving adequate rainfall, which should ensure reasonable water levels in reservoirs.
The official, however, cautioned that weather conditions during the remainder of the monsoon season would continue to be monitored closely, particularly during the critical crop-growth phase.
“El Niño is less of a worry… We still have to be prepared for issues coming up, but not of that order,” the policymaker said, drawing comfort that in the past the government has been able to manage inflationary pressures on tomatoes, onions and potatoes.
Cumulative rainfall during June 1-July 18 is 244.6 millimetres, 24.2% below the benchmark longer period average (LPA), which is still in the ‘deficient’ range. However, with the revival of monsoon rains this week, the deficiency in monsoon rainfall is likely to be reduced significantly, according to weather scientists
Officials also believe India’s macroeconomic outlook has strengthened in recent weeks, supported by softer commodity prices, resilient domestic demand and expectations of healthy corporate earnings. While geopolitical tensions may keep markets volatile in the near term, lower crude prices from recent peaks would reduce pressure on the oil import bill, inflation and the current account, reinforcing confidence that the economy can weather external shocks.
GDP expanded 7.7% in FY26, driven by manufacturing, services, investment and private consumption despite heightened global uncertainty. High-frequency indicators—including e-way bills, manufacturing and services PMIs, and electricity consumption—continued to indicate healthy momentum during the opening months of FY27.
With oil prices retreating, several forecasters recently revised up their India’s FY27 growth estimates upward to around 6.8%, while lowering inflation and current account deficit projections.