India’s growth trajectory is expected to remain steady despite the ongoing Middle East crisis, which has had repercussions across the world. In its latest report, SBI Research said the country is navigating the oil shocks and Iran war from a “position of strength”, forecasting GDP growth of 6.8% to 7.1% in FY27.The report indicated that India entered the current stage on a stable basis. “The country has entered the global geopolitical fray from a position of strength this time with growth in FY2026 of 7.6%, similar to the Russia-Ukraine crisis, when India was expanding by more than 9%,” she said.
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The International Monetary Fund says India is growing at twice the speed of the global economy, a sign of strength amid the global slowdown
Strong domestic fundamentals are also seen as a major barrier. “India has a strong banking sector,” the report said, while also calling for a “comprehensive package to support the balance of payments and hence the rupee.” At the same time, the report pointed to potential risks, noting that “fears of a super El Niño could overshadow growth estimates.” Inflation is expected to average 4.5%, and the fiscal deficit will range between 4.5% and 4.6%. The ongoing conflict is putting pressure on various sectors. SBI research described “multiple vortexes of headwinds” impacting agriculture, MSMEs, consumption and global supply chains. However, the report also pointed to “green shoots” that could help India reposition itself within global value chains.
Overall, the report emphasized that India’s growth story continues to show resilience, with growth likely to remain within the 6.8% to 7.1% range despite global and regional challenges. For the Reserve Bank of India, it highlighted the “paradox of growth and inflation” and said there was “little room for an interest rate decision at this stage.” It expects rates to remain unchanged “until the full impact of the war, when evolving weather patterns also become evident, implying that the low regime will persist for a longer period.”
US expectations: Oil shocks may constitute a test for growth, but the impact may be different
Looking at the global picture, the report said that oil shocks in the past have often pushed the United States into recession, although the current situation may unfold differently. “In contrast to previous oil shocks, US households are receiving large amounts of tax refunds and, in contrast to previous oil shocks, the United States has become self-sufficient in energy. Thus, as an oil exporter, the United States now maintains higher energy spending at home when prices rise.”As geopolitical tensions intensify and energy markets become tense, concerns about a potential slowdown in the US economy have increased. While such circumstances have historically led to wide-ranging repercussions, SBI research has indicated that the current session may have limited, if noticeable, impacts on India.The report highlighted several examples, including the 1973 oil embargo, the 1979 Iran crisis, the Gulf War, and the 2008 global financial crisis, where sharp increases in crude oil prices were followed by an economic contraction in the United States. However, the report said “this time may be different” due to changes in the US economy.With the United States now moving toward energy self-sufficiency and serving as a net energy exporter, higher oil prices may spread further within the domestic economy rather than creating the same level of external pressures seen previously. He also pointed to support for American households through large tax refunds, which could help maintain consumption and mitigate or delay the impact of any slowdown.However, the report warned that risks persist. Ongoing tensions in the Middle East and disruptions to global supply chains continue to add uncertainty, and although the traditional link between oil shocks and a recession in the United States may be weakening, it has not completely disappeared.The report also highlighted shifts in global investment patterns, noting that “the financial centers of Dubai and Abu Dhabi are entering a period of uncertainty,” as some global investors and non-resident Indians reassess their exposure to Dubai.
“This represents a good opportunity for IFSC GIFT City as a stable global financial destination.”Air travel patterns could also change, with parts of the airspace in the Middle East and UAE becoming more dangerous. India and China may emerge as alternative transit hubs, although the report warns that this “may require investments in airport infrastructure, connectivity and passenger experience.”Regarding interest rates, the report said that many central banks paused in 2026 after interest rate cuts in 2025, and are now “reassessing their glide path again if a promising agreement is reached…for peace in turbulent West Asia, incorporating the impact of domestic macroeconomic units, trade headwinds, fiscal constraints, and currency risks.”