Why S&P Global thinks Indian economy will withstand West Asian turmoil
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Amid a spike in fear of likely energy turmoil in the wake of continuing unrest in West Asia , S&P Global Ratings has made a forecast that India will face no significant pressure in terms of currency and inflation.According to the rating agency, lower global energy prices compared to last year as a key buffer for the Indian economy even as the Middle East situation continues to be touch-and-go.It is worth noting here that despite Israel and Iran finally having reached a ceasefire after a bloody 12-day war, the whole area -- the cradle of much of the world's oil -- remains a tinderbox, where even a small spark can touch off major face-offs and hold global oil trade hostage.S&P Global Ratings economist Vishrut Rana said that although the Indian economy remains exposed due to its heavy dependence on imported energy, the current scenario offers some relief. He noted that Brent crude oil is trading below last year's levels—around USD 85 per barrel in 2023, compared to lower prices now."This will help contain both current account outflows and domestic energy price pressures — while energy prices may rise moderately, the path of food prices will have a higher impact on inflation. Overall, we do not expect significant pressure on the Indian rupee or inflation," Rana told news agency PTI.Global oil markets reacted positively after US President Trump announced that Israel and Iran had agreed to a "complete and total ceasefire". The Brent crude benchmark fell to approximately $69 per barrel shortly after the announcement.Over the past 12 days, the region witnessed an escalation of hostilities with Israeli airstrikes followed by retaliatory attacks from Iran. The United States also intervened, targeting Iran's critical nuclear facilities.India relies heavily on imported energy — over 85% of its crude oil and nearly half of its natural gas needs are sourced from abroad. More than 40% of the oil and 50% of gas imports come directly from the Middle East, making geopolitical developments in the region crucial for India's economic health.Even so, S&P maintains a stable inflation outlook for the country. It estimates inflation to average around 4% in 2025, compared to 4.6% in 2024.In currency markets, the Indian rupee opened stronger on Tuesday, rising 65 paise from the previous close to trade at Rs 86.13 to a US dollar. S&P projects the rupee to gradually weaken to 87.5 against the dollar by the end of 2025, from 86.6 at the close of 2024.Rana acknowledged that financial markets could witness volatility due to investor risk aversion linked to global tensions."Heightened risk-aversion in global financial markets due to ongoing geopolitical tensions may cause INR volatility," he said. He added that an increase in oil prices could lead to higher current account outflows and a softer rupee, but reiterated that energy prices being lower than last year remains a significant cushion.Meanwhile, S&P revised its GDP growth forecast for India for the current financial year, raising it to 6.5%. The upgrade is based on three assumptions: a normal monsoon, reduced crude oil prices, and a more accommodative monetary policy environment.On the global outlook, Rana said: 'The impact on growth prospects for the world is modest for now, but prolonged geopolitical tensions are a risk to growth.'
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