India steps up measures to protect economy from Iran war oil shock

India is stepping up efforts to protect its economy from the fallout of the Iran war as rising energy prices and sustained foreign investor outflows increase pressure on the rupee and the country’s external sector.

A prolonged rise in energy prices triggered by the conflict has weakened India’s macroeconomic outlook and pushed policymakers towards crisis-era measures aimed at insulating Asia’s third-largest economy from external shocks.

The disruption to global energy supplies, which began in late February, has sharply increased India’s import bill while also discouraging overseas investors from putting money into local assets.

Economists have lowered growth forecasts for the economy, raised inflation projections and warned of continued pressure on the rupee, with India facing the possibility of a third straight year of a balance of payments deficit.

India’s dependence on imported fuel has left the currency especially exposed among emerging markets if the Iran crisis continues. The country imports about 90 per cent of its oil requirements and around 50 per cent of its gas needs.

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“Managing the current account credibly, financing it, and preventing further currency depreciation are big imperatives for India this year amid the Gulf crisis,” chief economic advisor V. Anantha Nageswaran said on Tuesday.

The energy shock linked to the U.S.-Iran conflict is expected to widen India’s current account deficit to 2.5 per cent of GDP in the fiscal year ending March 2027, compared with 0.9 per cent in the previous year.

Alongside pressure on the current account, the capital account is also under strain due to record foreign portfolio outflows.

Foreign investors have withdrawn more than $20 billion from Indian equities since the conflict began, while total outflows this year have already crossed last year’s record levels.

The rupee has fallen more than 5 per cent since the Iran war started and touched a record low this week, making it the worst-performing Asian currency so far in 2026.

To manage the pressure, policymakers have revived measures associated with earlier periods of economic stress, including calls for citizens to reduce consumption that uses foreign exchange.

Prime minister Narendra Modi on Sunday urged steps to conserve foreign exchange reserves, while the central government late on Tuesday raised tariffs on precious metal imports to reduce demand and support the rupee.

The Reserve Bank of India has also sold dollars from its foreign exchange reserves and used rare regulatory measures to stabilise the currency.

The stress on India’s external sector has drawn comparisons with the economic impact seen during the Russia-Ukraine war in 2022.

However, the current crisis comes at a relatively stronger starting point for the Indian economy, with inflation subdued and growth firm before the Iran war began.