India’s limited oil buffers, reliance on subsidies heighten risks from Middle East conflict, Moody’s warns
The agency noted that some Asia-Pacific economies are supported by sizeable strategic reserves, while India is more reliant on administrative measures to protect consumers, making the country vulnerable to sustained increases in global energy prices.
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Oil addiction is a major security vulnerability
India’s dependence on oil and gas imports from Gulf economies makes it particularly vulnerable to disruptions in the region. In a severe scenario simulated by Moody’s, Brent crude oil prices could rise as much as 64% above base levels if the conflict intensifies and continues.
Such an increase would cause serious economic damage, with GDP losses in the Asia-Pacific peaking at around 3%. India and China are expected to face major downsides due to their dependence on imported energy, which could weaken their trade balances, put pressure on their currencies and increase inflation.
Domestic demand is weak, inflation is good for now
While exports remain resilient across the region, domestic demand continues to decline, including in India, where consumption is below pre-pandemic trends.
This kept inflation relatively low. Consumer price inflation in India, which generally ranges between 4% and 6%, is currently running lower, in line with broader regional trends where price pressures are muted or even trending towards deflation in some economies.Also Read: India prepares for oil shock
However, Moody’s warned that the benign inflation environment could reverse if commodity prices continue to rise amid geopolitical tensions.
Policy dependence and limited buffers
Unlike Northeast Asian economies such as Japan and South Korea, which have sizeable strategic reserves to absorb short-term shocks, India has more limited buffers and relies on fuel subsidies, tax breaks and price caps to manage volatility.
While these measures may ease the immediate impact on consumers, they also impose financial costs and could constrain broader policy support if global conditions worsen.
Although India is less dependent on imports than some advanced Asian economies, its dependence on policy interventions rather than reserves underscores its vulnerability to prolonged external shocks, Moody’s said.
