Oil surge threatens India’s economy, Bernstein's new report warns of structural risks

Amid rising tensions in West Asia and a sustained increase in crude oil prices, the macro outlook of India faces rising risks, according to a report by global equity research and brokerage firm Bernstein. The report also warned that the ongoing geopolitical shock could lead to structural vulnerabilities in the Indian economy if it continues.

'A prolonged period of elevated crude and tighter external financing conditions could play out for India's macro," the report noted, warning of a potential "GFC moment." It also recalled that after the global financial crisis, "India's economic growth slipped from 10 per cent to 5 per cent, inflation spiked to 10 per cent, and the rupee depreciated 30 per cent."

The report highlighted crude oil prices as a major source of concern, warning that rising prices could push inflation beyond the acceptable range while also posing risks to economic growth and external stability. In a worst-case scenario, where the conflict continues into 2026, Bernstein cautioned that the impact could be severe, potentially leading to double-digit inflation, GDP growth slowing to 2–3 per cent, the rupee weakening past 110, and the Nifty falling well below 20,000.

Inflation is likely to cross 6 per cent

Even under more moderate conditions, the outlook remains difficult. The report indicated that there is a strong likelihood of inflation exceeding 6 per cent in the coming months, which could delay interest rate cuts by at least at the least, and GDP growth to taper. Higher crude prices are expected to strain external imbalances. The report also noted that "elevated crude and trade almost go hand in hand," potentially widening the merchandise trade deficit and putting pressure on the current account.

The currency is also under pressure, with the report indicating that the rupee could soon breach the 97–98 range if tensions persist. While a short-term easing of conflict is possible, Bernstein noted that lasting structural changes may already be taking place, with crude prices unlikely to return to previous lower levels this year.

Overall, the report warned that prolonged geopolitical tensions could significantly impact the economy, potentially setting growth back by three to four years. Even in less severe scenarios, it could reduce annual GDP growth by about one percentage point.