India’s strong macroeconomic and financial sector fundamentals are expected to mitigate the impact of sustained high oil prices, according to S&P Global Ratings. However, the agency noted that economic growth could slow by as much as 80 basis points if crude oil averages $130 per barrel in 2026.
In a stress scenario, S&P Global Ratings projects that corporate earnings before interest, tax, depreciation, and amortization (EBITDA) could decline by 15-25% in FY27, leading to a rise in leverage by 0.5x-1x. The banking sector’s asset quality may also weaken, potentially pushing bad loans to around 3.5%.
According to a report by S&P Global Ratings, India is not immune to the shocks stemming from the Middle East war. The agency cautioned that the impact of higher energy prices and supply disruptions could persist for months, thereby affecting economic activity across households, corporations, and banks.
Despite these challenges, S&P Global Ratings emphasized that strong corporate balance sheets, well-capitalized banks, and a resilient external position provide buffers against the impact.
S&P Global Ratings’ stress case assumes Brent crude at $130 per barrel in 2026 and $100 in 2027, compared to a base case of $85 and $70, respectively. While the agency does not anticipate any immediate impact on India’s sovereign rating, it acknowledged that fiscal consolidation efforts could face temporary setbacks.
The agency noted that higher oil prices could widen the current account deficit, with estimates indicating that a $10 per barrel increase may expand the gap by approximately 0.4 percentage points of GDP. Additionally, the rupee could face depreciation pressures amid risk-off sentiment and a rising import bill.
S&P Global Ratings warned that an energy shock would transmit through higher input costs, squeezed corporate margins, rising consumer prices, and increased fiscal strain if the government intervenes with subsidies. Potential supply disruptions affecting fuel and petrochemicals could also hinder growth.
Despite these risks, S&P Global Ratings noted that India’s economy entered 2026 with strong growth momentum, resilient domestic demand, and low inflation, which should help absorb near-term shocks. The agency added that strong domestic fundamentals, potential government support, and significant improvement in corporate and banking sector health over the past few years would mitigate the severity of any shock.
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