India ranks among the most vulnerable economies in the region, along with South Korea, China and Singapore. It’s heavy reliance on oil and gas imports leave it particularly exposed to external shocks.
“India and China face sizeable damage given their dependence on oil and gas imports from Gulf economies caught up in the conflict,” according to the Asia Pacific Economy Outlook report released on Monday.
Rising tension in the Middle East are disrupting energy markets, pushing prices higher and increasing inflationary risks across economies.
“Asia-Pacific economies are entering 2026 on a fragile footing, with growth set to slow, tariff uncertainty unresolved, and geopolitics adding fresh inflation risks,” the report mentioned.
In a prolonged and more severe conflict scenario, GDP losses across the Asia-Pacific region could reach up to 3%, “a larger hit than Europe or the United States”, said Moody’s Analytics. It expects regional growth to slow to 4% in 2026 and 3.6% in 2027 from 4.3% in 2025.
Despite the challenges, India is still expected to remain the fastest-growing economy, with GDP projected at 7.5% in 2026. It will, however, slow from 7.8% in 2025. Growth is projected to moderate further to 6.2% in 2027.While India and Southeast Asian economies are somewhat less reliant on imports, they have smaller reserves. As a result, governments often rely on price controls and fuel subsidies to cushion consumers from volatility, the report noted.
The conflict is driving up commodity prices, raising concerns about a rise in inflation and leading to shortages of chemicals and fertilisers.
“All of this creates an uncomfortable echo of the inflation and supply shocks that followed the COVID-19 pandemic and Russia’s invasion of Ukraine,” the report added.
Inflation in India is estimated to increase to 3.7% in 2026 and 4.1% in 2027 from 2.2% in 2025, according to Moody’s Analytics. Retail inflation rose 3.21% year-on-year in February from 2.74% in January.