Israel-Iran War May Hit India's Remittance Flow
Escalating US-Israel strikes on Iran have revived fears of not only oil disruption, higher inflation, global risk aversion but could also dent India's remittance flows from diaspora enough to impact its economy
Mumbai: Escalating US-Israel strikes on Iran have revived fears of not only oil disruption, higher inflation, global risk aversion but could also dent India's remittance flows from diaspora enough to impact its economy. India is the largest recipient of remittances globally and they account for nearly 3.5 per cent of the GDP.
Says Saloni Narayan, former deputy managing director at SBI, “All macro economic indicators could be impacted depending on how long the war continues. But in these times of uncertainty, remittances will definitely take a hit if the war is prolonged.”
Remittances are an important source of external funds for India, financing around half of India's merchandise trade deficit. According to RBI data, India’s personal remittances increased 15 per cent to $138 bn in FY25 financing about 47 per cent of its merchandise trade deficit. Personal remittances stood at $119 bn in FY24. The Gulf countries namely UAE, Saudi Arabia, Qatar, Kuwait where about 10 million of Indian workers are employed accounted for around 38 per cent (around $51 billion) of the total remittances that India received, it supplies 55 per cent of its crude oil.
According to SBI Economic Reserarch, “GCC countries account for around 38 per cent of the total remittances that India receives, thus oil price dynamics is one of the key determinants to our remittances.There is 5 per cent chance that higher prices may still result in slowing of inward remittances.”
While India remains relatively insulated in the short term, the report cautioned that a prolonged escalation of the West Asia conflict could affect oil prices, trade flows, and macroeconomic stability in the medium term.
The global oil market has experienced an upward movement, following the conflict, which led to closure of ‘Strait of Hormuz’. The price of Brent crude oil increased from $58.92 per barrel on Dec 16, 2025 and $70.75/b on Feb 26 to $85.40/b on March 5 which indicates the importance of the strait to global oil supplies. Brent Crude has now crossed ~$89 per barrel.
According to SBI Research Report, a $10-per-barrel increase in crude oil prices could widen India’s current account deficit (CAD) by around 36 basis points. The rise in oil prices may also lead to cost-push inflation, adding around 35-40 basis points to consumer price inflation.
Economic growth may also moderate if oil prices remain elevated. The report estimates that a $10-per-barrel increase in oil prices could reduce India’s GDP growth by 20-25 basis points. In a worst-case scenario where crude oil prices rise to $130 per barrel, India’s GDP growth in FY27 could slow to around 6 per cent from the assumed baseline of about 7 per cent.
The report also noted that Indian banks and private sector entities also have significant exposure to the region, which could pose additional risks if geopolitical tensions escalate further.
