The Indian rupee opened 11 paise lower at 86.35 against the US dollar on Tuesday, weighed down by fears of foreign capital outflows as crude oil prices surged over 4% following escalating hostilities between Iran and Israel, which have now entered their sixth day.
The domestic currency had settled at 86.24 in the previous session. Meanwhile, the dollar index, which tracks the greenback against six major global currencies, edged down slightly to 98.692 from 98.820, offering little relief to emerging market currencies like the rupee.
Oil prices soared after reports of fresh missile exchanges between Iran and Israel overnight, raising concerns about potential supply disruptions in the Middle East, the world’s most crucial energy hub. Brent crude futures rose by $3.22 to settle at $76.45 per barrel, while US WTI crude climbed $3.07 to end at $74.84 per barrel.
“Exporters must continue selling dollars as the rupee could quickly return to the 85.50 level once the conflict de-escalates,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.
India, which imports over 80% of its crude oil needs, remains vulnerable to global oil shocks. According to Reuters, a $10 per barrel increase in oil prices can widen India’s current account deficit by 0.4% of GDP and potentially add up to 35 basis points to retail inflation — posing a dual challenge for policymakers battling to keep prices in check while ensuring economic stability.
The ongoing conflict shows no signs of abating. Israeli military sources reported that Iran launched two waves of missiles targeting Israel early Wednesday, triggering explosions over Tel Aviv. In response, Tel Aviv has warned residents in parts of Tehran to evacuate, hinting at imminent air strikes on Iranian military assets. Iranian state media have confirmed multiple explosions in Tehran and the neighboring city of Karaj, as tensions in the region spiral further.
Market experts caution that prolonged instability could push oil prices higher, intensify global risk aversion, and put additional downward pressure on the rupee in the days ahead.