Middle East conflict key risk for FY27, potential impacts on exports, remittances: Report

India’s merchandise trade showed mixed trends in February 2026, with exports remaining largely stable while imports surged sharply, widening the trade deficit and raising concerns over the impact of the ongoing Middle East conflict, according to a research report by ICICI Bank.

Looking ahead, the report flagged the Middle East conflict as a key risk for FY27, with potential impacts on exports, remittances, and oil prices if tensions persist. Assuming average crude prices of USD 80 per barrel, the goods deficit could rise to USD 383 billion, with the current account deficit widening to 1.4% of GDP.

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Additionally, heightened global uncertainty is expected to keep foreign portfolio investment flows subdued, putting pressure on the rupee, which is projected to trade in the range of 91.5–93.5 per US dollar in the near term.

Goods exports stood at USD 36.6 billion in February, marginally down 0.8% year-on-year, as a steep decline in oil exports offset gains in non-oil segments. Oil exports dropped sharply by 40% to USD 3.4 billion, while non-oil exports rose 6.4% to USD 33 billion, supported by strong performance in engineering goods and electronics.

However, goods imports rose significantly by 25% year-on-year to USD 63.7 billion, driven by a sharp increase in gold imports, which surged 219%, along with higher non-oil, non-gold imports and oil purchases. As a result, India’s trade deficit widened to USD 27.1 billion in February.

On a cumulative basis, the goods trade deficit expanded to USD 311 billion during April–February FY26, compared to around USD 262 billion in the same period last year, reflecting stronger import growth relative to exports.

Exports to the United States declined by 13% year-on-year during the month, even as shipments to other markets remained steady. While easing US tariffs may support future exports, the report warned that escalating tensions in the Middle East could disrupt shipments to the region, which accounts for nearly 15% of India’s exports.

The geopolitical situation is also pushing up global crude oil prices, which have climbed to around USD 100 per barrel. This poses upside risks to India’s import bill and could further pressure the current account. India’s heavy dependence on energy imports, particularly from the Middle East, makes it vulnerable to such shocks.

Despite the widening goods deficit, strong growth in services exports, up 18% so far this fiscal, has helped keep the current account deficit relatively modest, estimated at about USD 33 billion or 0.8% of GDP.