US‑Iran peace pact could lower India's oil import bill and ease fiscal pressures

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NEW DELHI: The US-Iran peace agreement is expected to strengthen India's macroeconomic outlook by easing pressure on inflation, the current account deficit and government finances. The deal removes one of the biggest external risks facing the country as policymakers grappled with uncertainty arising from the conflict in West Asia.

With tensions easing, economists expect lower crude oil prices to reduce India's import bill, improve the current account position and ease pressure on the rupee. According to Pronab Sen, former chief statistician, the announcement is positive for India, but much will depend on the details of the agreement, particularly regarding the Strait of Hormuz.

"If the opening comes with conditions or operational constraints, concerns over energy supplies and freight costs may persist. However, if normal shipping operations are fully restored, it could significantly ease pressure on the Indian economy through lower crude oil prices, reduced inflationary risks and a smaller import bill,” Sen said.

Beyond energy, the removal of supply chain disruptions will also give a meaningful fillip to manufacturing activity and export recovery to the West Asian region,” said Rajnish Gupta, partner, tax and economic policy group at EY India.

“At the same time, we are mindful that a series of steps still need to fall into place — normalization of trade routes, stabilization of global supply chains and sustained diplomatic momentum for these gains to fully materialize,” said Gupta.

The development is also expected to help contain inflationary pressures. The easing of tensions has already pushed global crude oil prices lower, reducing concerns over energy supply disruptions through the Strait of Hormuz.

“Lower fuel costs reduce transportation and logistics expenses, which eventually lower input costs for industries and help keep consumer prices in check,” said Dr Dharmveer, assistant professor in the department of economics at Delhi School of Economics.

“For India, which imports more than 85% of its crude oil requirements, lower oil prices translate into reduced fuel, transportation and logistics costs,” said Abhash Kumar, assistant professor of economics at Delhi University.

The announcement is clearly positive for India, but much will depend on the final terms of the agreement and how durable the peace arrangement proves to be, said Madan Sabnavis, chief economist at Bank of Baroda.

“The development provides some comfort to the Monetary Policy Committee, but inflation dynamics will continue to determine the future interest-rate trajectory," said Sabnavis.

Fertilizer subsidies were a key concern for India due to the West Asia war. In preparation for the upcoming rabi season, the Department of Fertilizers had sought a 100% increase in fertilizer subsidy to ₹3.4 trillion for FY27 to offset mounting losses faced by manufacturers, who are required to sell fertilizers at subsidized prices even as their production costs surged due to disruptions caused by the West Asia conflict. The Centre had budgeted about ₹1.71 trillion for fertilizer subsidies in FY27.

“Fertilizer subsidies were a key concern as the production cost of fertilizers is closely linked to natural gas and other energy inputs,” said Dharmveer.

Last week, the World Bank upgraded India's FY27 growth forecast to 6.6% from 6.5% projected in January as it lowered estimates for major economies amid the fallout of the conflict. In its Global Economic Prospects report released on 11 June, the World Bank said India's economy is expected to expand by 6.6% in FY27, down from an estimated 7.7% in FY26, before accelerating to 7.2% in FY28.

The Indian economy has continued to display resilience despite the disruptions caused by the West Asia conflict. India's economy expanded 7.8% in the March quarter of FY26, marginally lower than the upwardly revised 8% growth recorded in the preceding quarter, taking full-year FY26 growth to 7.7%, according to provisional government estimates released on 5 June.