Prolonged energy disruption to widen India trade deficit, strain fiscal account: Moody’s

[BENGALURU] A prolonged disruption in energy supply can widen India’s trade deficit and strain the fiscal account of the world’s fastest-growing major economy, said rating agency Moody’s in a report on Monday (Apr 20).

Brent crude prices have shot up 31 per cent since the US-Israeli war on Iran began on Feb 28 and have been see-sawing with each development, while prospects of peace fuelled a recovery in stock markets globally.

India is the world’s third-largest crude importer, and higher prices tend to increase its import bill and inflation, and affect corporate margins.

As a result, foreign investors offloaded Indian shares worth US$18.6 billion so far in 2026 – March logged a record US$12.7 billion worth of net outflows.

“Given lingering risks and because some production operations in the Middle East and logistical assets will take time to restart and reposition, risk (premiums) and key commodity prices will likely remain structurally higher for some time,” Moody’s Ratings said.

The rating agency currently has “Baa3” rating on India with a “stable” outlook. It had trimmed its growth forecast for India’s real gross domestic product to 6 per cent for FY2027 from 6.8 per cent, factoring in the impact of the Iran war.

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“A prolonged disruption would pose more material challenges, potentially entrenching inflation, straining fiscal and monetary policy flexibility and testing external investor confidence,” it added.

The impact of higher crude oil on companies will be uneven, the report noted, with oil marketing companies (OMCs) and fuel-dependent sectors such as cement and chemicals likely bearing the brunt of the price shock.

“Cost hikes associated with inland transportation have been contained for now through fuel subsidies borne by state-owned OMCs, but this has shifted cost pressures onto their balance sheets in a manner we view as unsustainable,” Moody’s noted. REUTERS