Let’s take a look at what a possible US-Iran peace deal signing and Strait of Hormuz opening mean for India. (AI image)
“Ships of the World, start your engines," US President Donald Trump wrote on Truth Social, announcing an imminent peace deal with Iran and the opening of the Strait of Hormuz. “Let the oil flow!” he said.
The peace deal is reportedly going to be signed on Friday in Geneva. The Strait of Hormuz closure has been responsible for global crude oil prices surging and resulting in an economic shock for the world. India, dependent on imports for almost 90% of its needs, has seen the impact. Rupee has depreciated sharply, petrol and diesel prices have risen, inflation is climbing, forex reserves have fallen, oil import bill has gone up, foreign investors have rushed out, stock markets have fallen, and GDP growth forecasts have been trimmed. But that could change if a peace deal materialises, though that remains a big if, given how many times an agreement has appeared close only to fall through. If it does happen, it would reduce the impact of the US-Iran war on the Indian economy and its key fundamentals to a few quarters. Let’s take a look at what a possible US-Iran peace deal signing and Strait of Hormuz opening mean for crude oil prices, rupee, stock market, inflation, balance of payments, and GDP growth:
Crude oil, petrol, diesel & LPG prices
Crude oil prices have already shown how temporary the nature of their rise is - if the Strait of Hormuz opens, global supply will likely be restored in the coming months, bringing down prices.
From peaks of around $120 per barrel seen during the conflict, crude prices have dropped below $85 per barrel in hopes of a peace deal. Aș per SBI Research estimates, every $10 per bbl increase in crude oil prices may widen the CAD by 36 bps in FY27.
Falling crude oil prices would help check a widening current account deficit.
A recent Fitch report sees the oil market returning to over supply once the crisis is resolved. "The disruption does not alter the longer-term direction of the market, which is expected to return to surplus conditions later this year," Fitch Ratings said.
The rating agency sees crude oil prices on an average being at around $87 per barrel in 2026. So what does this mean for India? Petrol and diesel prices have seen a Rs 7.5-8 per litre hike since May 15, 2026. Before that the government had cut excise duties on the two fuels to keep prices in check. Oil marketing companies are still suffering huge losses in everyday retail sales. LPG prices for domestic cylinders have also been increased twice since the conflict began. But, even as supplies ease and global prices come down, it may take some time for retail prices of petrol, diesel, and LPG to come down meaningfully.
Rupee
Perhaps one of the biggest beneficiaries would be the rupee, which has been on a record depreciation spree - dropping to almost 97 versus the US dollar recently. Already weakened in 2025 due to foreign outflows, the Middle East issue has been a big blow for the Indian currency.
The Reserve Bank of India (RBI’s) recent steps to attract foreign inflows, and the government move on tax exemption for bonds, have helped stabilise the currency. Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities says that if the US-Iran peace deal is formally signed and the Strait of Hormuz returns to normal pre-war traffic conditions, it would be a significant positive for the rupee.
“The biggest benefit would come through smoother crude oil supplies, reduced freight and insurance costs, and lower concerns over India's import bill.
Since India imports a large portion of its energy requirements, normalization of crude flows can improve sentiment towards the rupee and reduce pressure on the current account deficit,” Trivedi tells TOI. The rupee has already started showing signs of recovery over the past few sessions as markets anticipate a potential resolution. “A stable energy market environment would further support the currency and could encourage foreign investors to reassess emerging market allocations.
However, the key factor from here will be FII flows. Even if crude-related pressures ease, persistent FII outflows could still limit rupee gains and remain a concern for overall currency stability,” he cautions. “Technically, the rupee has important support near the 95.00 zone. As long as it holds above 95.25, the recovery trend remains intact and a move towards 94.00 cannot be ruled out in the coming weeks if geopolitical conditions continue to improve and capital flows stabilize,” he added.
Balance of Payments
Chief Economic Advisor V. Anantha Nageswaran recently called the ongoing situation a live balance of payments ‘stress test’ for India. With higher crude import bills, continued foreign investor outflows, and weakening rupee, India has been looking to keep its balance of payments deficit under check.
Once rupee appreciates, foreign investors come back to the…
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