India’s economy is likely to withstand a sharp rise in crude oil prices, but not without some strain, according to a recent report by S&P Global Ratings. The agency has outlined a stress scenario where Brent crude prices surge to $130 per barrel in 2026, warning that while India has strong buffers, economic growth and corporate performance could face pressure.
S&P estimates that such a spike in oil prices could reduce India’s GDP growth by up to 80 basis points, highlighting the country’s vulnerability to global energy shocks, particularly amid geopolitical tensions in West Asia.
Growth slowdown and corporate impact
Under the stress case, corporate earnings before interest, tax, depreciation and amortisation (EBITDA) could decline by 15–25 per cent in FY27. This would be accompanied by a rise in corporate leverage by 0.5x to 1x, indicating increased financial stress on businesses.
Higher oil prices are expected to push up input costs across industries, squeezing profit margins and potentially slowing investments. Sectors such as chemicals, refining, and aviation are likely to be the most affected due to their heavy dependence on fuel and energy inputs.
Banking sector and fiscal pressure
The banking sector, while currently strong, may also feel the ripple effects. S&P projects that non-performing assets (NPAs) could rise to around 3.5 per cent under the stress scenario, reflecting a moderate deterioration in asset quality.
Indian banks, however, are considered well-capitalised, with improved balance sheets and lower bad loans compared to previous years. This positions them to absorb shocks, although profitability and credit growth may face some pressure in FY27.
On the fiscal front, higher oil prices could strain government finances, especially if subsidies are introduced to shield consumers from rising fuel costs. This could temporarily disrupt India’s fiscal consolidation efforts.
External balance and rupee concerns
A surge in crude prices is also expected to widen India’s current account deficit. According to estimates, every $10 per barrel increase in oil prices could expand the deficit by about 0.4 percentage points of GDP.
The Indian rupee may face depreciation pressures due to a rising import bill and global risk aversion. Supply disruptions, particularly around key routes such as the Strait of Hormuz, could further exacerbate the situation.
Strong fundamentals offer cushion
Despite the risks, S&P emphasised that India’s macroeconomic fundamentals remain robust. Strong domestic demand, relatively low inflation, and improved corporate and banking sector health provide important buffers.
“India isn’t immune to global shocks, but its strong balance sheets and external position offer resilience,” the report noted.
Infrastructure and utility sectors are expected to remain relatively stable, while corporate deleveraging over recent years has reduced systemic vulnerabilities.
Outlook depends on global development
S&P’s base case assumes that geopolitical tensions will ease in the coming months, with crude prices moderating to $85 per barrel in 2026 and $70 in 2027. Under this scenario, the economic impact would be significantly less severe.
However, if elevated oil prices persist for a prolonged period, the risks to growth, fiscal stability, and external balances could intensify.
Conclusion
While a $130 oil shock would test India’s economic resilience, the country appears well-equipped to manage short-term disruptions. Strong financial systems, corporate health, and domestic demand are likely to cushion the blow.
However, sustained high oil prices could slow growth, strain public finances, and pressure external balances, making global developments a key factor in determining the overall impact on India’s economy.