In August 2025, S&P Global Ratings upgraded India’s sovereign credit rating from BBB ~ to BBB ~ the first such elevation in eighteen years. The government claimed vindication. Fiscal prudence, inflation control, and sustained growth had earned India a place among the world’s more credible economies. Eight months later, on the last trading day of FY26, the Indian rupee breached 95 to the dollar for the first time in history, closing at 94.83 after touching an intraday low of 95.22. FY26 ended as the worst year for the currency in fourteen years, with a depreciation of 9.88 per cent.

The distance between those two moments ~ the commendation and the collapse ~ is the terrain this article explores. The proximate cause is no mystery. On 28 February 2026, the United States and Israel launched military strikes against Iran’s nuclear infrastructure. Within days, Iran declared the Strait of Hormuz effectively closed. The strait, through which roughly twenty per cent of the world’s daily oil supply transits, was shut to significant commercial traffic within a week. Brent crude, which had settled around $70 a barrel in late February, surged past $100 on 8 March, touched $126 at its peak, and by late March was still trading above $115 ~ a record monthly gain of roughly 55 per cent.

For India, which imports approximately 88 per cent of its crude oil ~ a dependence that has risen, not fallen, over the past decade ~ this was not a distant geopolitical drama. It was a direct assault on the balance of payments. The arithmetic is unforgiving. SBI Research estimates that every $10 per barrel increase in crude widens the current account deficit by roughly 36 basis points of GDP and raises inflation by 35 to 40 basis points. With Brent having risen by over $45 in under a month, the annualised damage runs into tens of billions of dollars. Goldman Sachs has cut its 2026 GDP growth forecast for India from seven per cent to 5.9 per cent, raised its inflation projection to 4.6 per cent, and warned the current account deficit could widen sharply if crude sustains above $130.

The OECD concluded that the Iran war has erased an earlier global growth upgrade and........

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