In its October 2026 Regional Economic Outlook, the IMF flagged the protracted Middle East conflict as a key downside risk for Asia‑Pacific, noting that sustained energy price spikes could derail India’s growth trajectory.
India, Japan, and South Korea have pivoted to non‑Middle Eastern suppliers, restoring pre‑conflict oil flows since June. While crude imports rebounded, refined products like diesel and jet fuel have surged sharply, tightening transportation costs for businesses and consumers alike – a Delhi trucking firm said diesel hikes cut its margins by 3%.
Rising energy costs are tightening fiscal balances, forcing governments to balance relief with sustainability. The IMF urged governments to prioritize targeted, time‑bound assistance over blanket subsidies. “Fiscal policy should preserve sustainability while protecting vulnerable households,” the IMF said.
The report also flagged AI‑investment volatility and higher sovereign yields as potential growth drag. India’s GDP is projected at 7% in 2026 and 2027, but macro stability remains critical to maintaining that trajectory.
Indian officials are set to convene a cabinet meeting in early November to formulate targeted relief measures amid the looming inflationary threat.