India’s economy will grow by lower rates over the next year than initially expected as the energy supply shock from the Middle East is hitting supply and manufacturing and raising prices for industry and consumers, analysts say.
The war in the Middle East and the de facto closed Strait of Hormuz have crippled oil, LNG, and LPG supply to India, which is the world’s third largest crude oil importer and relies on the Strait of Hormuz for 90% of its imported LPG, the liquefied petroleum gas most households use for cooking.
Iran has begun to selectively allow passage through Hormuz to India-flagged energy cargoes, and India is back to buying Russian crude en masse after the U.S. waiver on purchases of Russian crude on tankers.
However, these aren’t enough to offset the supply that’s still trapped in the Strait of Hormuz.
Crude supply to India from Iraq, Saudi Arabia, and the United Arab Emirates (UAE) plunged in March compared to February. In contrast, deliveries from one of Africa’s top producers, Angola, tripled, although the share of Angolan crude remains small.
Amid the chaos on energy markets and surging energy prices, India’s economy would grow at a weaker pace than previously thought.
Standard Chartered, for example, has lowered its GDP growth forecast for India to 6.4% from 7% for the fiscal year 2027, ending March 2027, anticipating the high crude prices and potential supply disruptions to weigh on growth, inflation, and fiscal balances.
In January this year, the Indian government had expected GDP growth at 6.8-7.2% for the fiscal year 2027, and at 7.4% for FY 2026.
Moody’s Ratings has also slashed India’s GDP growth estimate for FY 2027 – to 6% from 6.8%, on the back of the Iran war that is expected to increase risks to inflation and slow industry growth.
Inflation in food and energy is set to double the overall inflation rate, to 4.8% in FY 2027 from 2.4% in FY 2026, which has just ended, according to Moody’s.
By Michael Kern for Oilprice.com
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