S&P Global Ratings said India’s strong macroeconomic and financial fundamentals are likely to soften the blow of a prolonged oil price shock, but growth could still decline by up to 80 basis points if Brent crude averages around $130 per barrel in 2026. Under this stress scenario, the agency expects corporate EBITDA to fall by 15–25% in FY27, while leverage could increase by 0.5x to 1x. Bank asset quality may also deteriorate, with non-performing loans rising to about 3.5%.

The report noted that India is not fully insulated from disruptions linked to the West Asia conflict, as higher energy prices and supply constraints could weigh on households, businesses, and banks for an extended period. At the same time, S&P highlighted that strong corporate balance sheets, well-capitalised banks, and a stable external position would act as important buffers.

In its assumptions, Brent crude is projected at $130 per barrel in 2026 and $100 in 2027 under stress conditions, compared with a base case of $85 and $70. The agency does not anticipate any immediate sovereign rating impact, although fiscal consolidation may face short-term pressure. Rising oil prices could also widen India’s current account deficit, with each $10 increase in crude potentially adding about 0.4 percentage points of GDP to the gap. The rupee may come under depreciation pressure due to higher import costs and weaker investor sentiment.

S&P added that an energy shock would likely pass through the economy via higher production costs, margin pressure, inflation, and possible government subsidies, which could strain public finances. Sectors such as chemicals, refining, and aviation are expected to be most affected, while infrastructure and utilities may remain relatively stable.

Despite these risks, India enters 2026 with strong growth momentum, solid domestic demand, and low inflation, which should help absorb near-term shocks. Corporate deleveraging and improved banking health over recent years are also expected to limit systemic stress. Indian banks are seen as capable of handling the impact due to strong capital buffers and low bad loans, though credit costs and profitability may face mild pressure in FY27. S&P said India is positioned to withstand short-term oil price spikes and supply disruptions, but a prolonged shock could pose risks to growth, fiscal stability, and external balances. It added that while some strain is manageable, fiscal consolidation efforts may be temporarily delayed.