The US-Israel strikes on Iran on 28 February 2026, killing Iranian Supreme Leader Ali Khamenei and sparking retaliatory threats, has disrupted shipping through the Strait of Hormuz – world’s most critical oil chokepoint handling 20 per cent of global oil flows – and damages to key energy infrastructure assets in the Middle East, mark a pivotal escalation echoing the 1991 Gulf War oil shocks, potentially reshaping global energy geopolitics for decades, the Monthly Economic Review, February 2026, by the Department of Economic Affairs said.
This conflict has already driven Brent crude up around 9 per cent to near USD 80 per barrel and LNG prices by around 50 per cent. Despite the country’s high import dependency on crude oil, it has sufficient foreign exchange reserves, a low current account deficit (which stands at 0.8 per cent of GDP in first half of FY26), and low inflation rates, which collectively allow it to effectively mitigate the impacts of rising global crude oil prices and ensure domestic energy security, it said.
Subdued capital flows, accentuated by a flight to safety, could put pressure on the currency. Some sectors dependent on LNG and crude, like fertilisers and petrochemicals, could be affected if the crisis is prolonged, the report warned.
The implications of the conflict for India are significant and may be longer-lasting in ways that are not immediately understood, it said.
“India enters the next financial year with a solid macroeconomic backdrop, unlike during the previous turbulent episodes in the Gulf region. Growth is solid, inflation is moderate, credit growth is healthy, the fiscal deficit is under control, and external stability is intact,” the review said.
Scenario building exercises on the macroeconomic impacts of higher oil prices suggest that crude oil prices must remain above USD 100 per barrel for a sustained period for macroeconomic aggregates to reflect the strain, it said.
But there are large unknown unknowns in several other areas. Crude oil may be one obvious stress marker, but the supplies of natural gas and cooking gas also matter. The safety of sea lanes matters for overall exports and capital flows, the report added.
“This is no time for complacency or basking in the solidity of our post-Covid macroeconomic performance hitherto. That belongs to history. The future has become that much more uncertain, with every indication that it will remain so for quite some time to come,” it said.
If and when growth is buffeted by external developments, long-standing issues such as urbanisation, air and water pollution, unbalanced economic development of states and the unsustainable fiscal health of some of them may emerge as more binding growth constraints than before, the report added.
Read more here: https://dea.gov.in/files/monthly_economic_report_documents/Monthly%20Economic%20Review%20February%202026.pdf
