As the ongoing US-Israel conflict involving Iran hits nearly a week, the Finance Ministry said on Friday that it could have important consequences for India and the global economy, though the country is entering the next financial year with a strong macroeconomic position.
The Nirmala Sitharaman-led ministry, in its Monthly Economic Reiview for February, said that tensions in West Asia have increased uncertainty in the global economy and financial markets, and volatility could remain high for some time.
“The implications of this conflict for India are significant and may be longer-lasting in ways that are not immediately understood,” the report said, adding that there is still considerable uncertainty about how the conflict will eventually end.
A major concern highlighted in the report is the security of the Strait of Hormuz, a crucial route near Iran for global oil shipments. Any disruption in the strait could lead to higher oil prices as geopolitical risks increase.
“If the Strait of Hormuz remains vulnerable to disruption, the geopolitical risk premium in oil prices will inevitably return. If the confrontation ends with a credible shift in the regional balance of power, the international system will gradually absorb the shock, and markets will stabilise. But if the declaration of victory precedes the resolution of the underlying strategic contest, the apparent calm may prove fleeting,” the report noted.
The ministry added that the long-term impact of the conflict will depend on how the regional balance of power changes once the fighting ends. If the situation stabilises in a credible manner, global markets may gradually adjust.
However, it cautioned that if claims of victory come before deeper strategic tensions are resolved, any calm in markets could be temporary.
Analysts at the ministry compared this disruption to the 1991 Gulf War, warning that the era of cheap energy may be replaced by a volatile “inter-war” style period for global trade.
The war and India’s eco outlook
Despite these risks, the Finance Ministry said India’s economic position today is stronger than during previous periods of instability in the Gulf.“India enters the next financial year with a solid macroeconomic backdrop, unlike during the previous turbulent episodes in the Gulf region,” the report said, indicating that stronger fundamentals could help the country manage potential shocks from energy markets and global uncertainty.
“Growth is solid, inflation is moderate, credit growth is healthy, the fiscal deficit is under control, and external stability is intact,” the report added.
Simultaneously, the review officially introduced a new GDP series with a 2022-23 base year.
“Inflation under the new CPI 2024 series firmed moderately in January 2026 to 2.75 per cent, reflecting normalisation in food prices, but remained within a broadly benign range. The new GDP series shows a smaller but steadfast economy, especially post-pandemic, with three consecutive years of growth above 7 per cent,” the finance ministry said.
The report also explicitly references the gravity of “Operation Epic Fury,” noting that the destruction of Iran’s leadership has created a power vacuum that complicates any immediate return to stability for Indian trade routes.
On a positive note, the ministry highlighted that India’s defence against this volatility is bolstered by massive foreign exchange reserves of over $720 billion, which is currently sufficient to cover 11 months of imports and provide the Reserve Bank of India with significant ammunition to defend the Rupee.
“Overall, the macroeconomic environment remains characterised by stable growth, contained inflation and continued reform momentum,” the report said.>
