In a warring world, how India can brace for a crisis that goes beyond oil

In 2022-23, after Russia’s invasion of Ukraine, India’s current account deficit (CAD) hit a 10-year high of $67.1 billion, amid skyrocketing global oil, fertiliser and food prices. But the situation was relatively manageable, thanks to net capital inflows of $57.9 billion and some drawdown of official foreign exchange reserves. As international commodity prices eased and India started buying discounted Russian crude, the CAD narrowed to $26.1 billion, even as net capital flows soared to $89.8 billion, in 2023-24. The US-Israel versus Iran war offers no such relief. Capital flows fell to $18 billion in 2024-25 and have turned negative (minus $581 million) for the April-December 2025 period. India, thus, had a capital account problem before this war began: Foreign portfolio investors made net sales of $18.9 billion in Indian equities last year and $3.8 billion so far in 2026.

The current war, moreover, unlike Russia-Ukraine, is being fought far closer to home. India’s exports of goods to the Gulf Cooperation Council (GCC) and other West Asian countries were valued at over $65.5 billion, and imports, mainly of petroleum and fertilisers, at $154.6 billion in 2024-25. Further, there are nearly 8.9 million overseas Indians in the six GCC states alone and they account for some 38 per cent of the private remittances of $135.4 billion received by the country during the last fiscal. The GCC countries have also emerged as a major source of foreign direct investment into India, across sectors, from energy and infrastructure to retail and data centres. Given the level of integration and flow of goods, labour and capital, any cataclysmic event in this region has huge consequences for India. The impact would be both on merchandise trade (especially from higher imported oil and gas prices) and invisibles (from lower remittance receipts), adding to the already weak capital flows.

India will seek to soften the blow for now by sourcing more Russian oil; that would have happened even without the 30-day “temporary waiver” from US sanctions. But this is a crisis that goes beyond oil, with the potential for dislocation far greater than from Russia-Ukraine. West Asia is today part of India’s extended neighbourhood, vital to its energy security and hosting a massive diaspora contributing equally to the region’s development and economic stability to families back home. India cannot afford to be indifferent. The Narendra Modi government must take the Opposition and Parliament into confidence, like it did during Covid and Operation Sindoor.

Overall Analysis

This editorial examines the economic risks that India may face due to escalating geopolitical tensions in West Asia, particularly the conflict involving Israel, Iran, and the United States. The author argues that the potential crisis for India is not limited to rising oil prices but could extend to trade, capital flows, and remittances from the region.

The article begins by recalling the economic shock caused by the Russian invasion of Ukraine, which sharply increased global commodity prices. During that period, India’s current account deficit (CAD) rose significantly because of higher costs of oil, fertilisers, and food imports. However, the situation remained manageable because India received strong capital inflows and also benefited from purchasing discounted crude oil from Russia. These factors helped reduce the deficit in subsequent years. The author contrasts this earlier crisis with the present situation, noting that capital inflows have already weakened. Foreign investors have been withdrawing funds from Indian markets, creating vulnerabilities in the capital account even before the current conflict intensified.

The editorial then highlights the deeper structural connection between India and West Asia. The region, especially the countries of the Gulf Cooperation Council, plays a crucial role in India’s economy. India imports large quantities of petroleum and fertilisers from these nations while exporting goods worth billions of dollars. Additionally, millions of Indian workers live and work in these countries, sending significant remittances back home. These financial inflows are a key component of India’s external stability. Therefore, any large-scale conflict or instability in the region could disrupt trade routes, increase energy costs, and reduce remittances, thereby worsening India’s balance of payments situation.

The article further suggests that India might attempt to mitigate the impact by continuing to import discounted oil from Russia, even amid sanctions pressures. However, the author stresses that the current crisis is far broader than energy supply. Because West Asia has become part of India’s “extended neighbourhood”, economic shocks there could simultaneously affect merchandise trade, energy security, investment flows, and diaspora income.

In its concluding section, the editorial moves from economic analysis to political advice. It argues that the Indian government under Narendra Modi should approach this situation with transparency and political consensus. The author suggests that the government should engage the Opposition and Parliament, similar to how it built national unity during the COVID-19 crisis and the evacuation mission Operation Sindoor. Such consultation would help prepare the country for a potentially severe external economic shock.

Overall, the editorial combines economic data with geopolitical analysis to warn that India must prepare for a broader financial and strategic crisis emerging from instability in West Asia.

Important Vocabulary (5)

1. Skyrocketing – rising very quickly and dramatically.
2. Drawdown – a reduction in reserves or stored resources.
3. Cataclysmic – extremely destructive or disastrous.
4. Dislocation – a serious disruption in normal systems or structures.
5. Remittances – money sent by workers living abroad to their families in their home country.

Conclusion & Tone

The editorial argues that geopolitical conflict in West Asia could trigger a wide-ranging economic crisis for India affecting trade, capital flows, remittances, and energy security. It calls for proactive economic planning and political consensus to manage potential shocks.

Tone: Analytical, cautionary, and policy-focused.