Rupee Hits Two-Month Low as Oil Surges Past $95

The Indian rupee slumped to its weakest level in two months on Wednesday, closing at 96.5650 against the US dollar, as surging crude oil prices triggered by escalating US-Iran hostilities rattled currency and equity markets.

The rupee declined 0.3% on the day, opening at 96.36 and trading between 96.25 and 96.57 before settling at the lower end. The currency is now drifting towards its all-time low of 96.96, hit in May 2026.

Contents

01

What Drove Oil Prices Higher

02

Supply Chain Disruptions Multiply

03

RBI Steps In, Markets Tumble

What Drove Oil Prices Higher

Brent crude surged about 5% to over $95 per barrel as the United States struck Iranian military targets for an 11th consecutive night. Iran retaliated by attacking US facilities in Kuwait, Bahrain and Jordan. The renewed escalation has driven oil prices up more than 25% this month. Goldman Sachs warned Brent could climb to $120 if disruptions through the Strait of Hormuz persist, though its base case sees Brent averaging $80 in the fourth quarter if tensions subside. Traffic through the waterway has declined sharply since a ceasefire collapsed earlier in July.

Supply Chain Disruptions Multiply

Iran-aligned Houthi forces threatened vessels carrying Saudi oil through the Bab el-Mandeb Strait and announced a naval blockade. Three tankers carrying Saudi crude to China and India turned around in the Red Sea on Tuesday after receiving Houthi warnings. ING analysts said the blockade would force tankers to use the Suez Canal, adding significant time and expense to Asia-bound voyages. The Caspian Pipeline Consortium's Black Sea terminal stopped receiving Kazakh oil after suspending loadings following tanker attacks. US crude and distillate inventories rose last week while gasoline stockpiles declined.

RBI Steps In, Markets Tumble

State-run banks offered dollars around 96.50 to 96.55, most likely on behalf of the RBI, limiting the rupee's losses. The central bank's support measures have attracted more than $20 billion as of July 17, though economists reckon a portion was used to unwind part of its over $100 billion in forward dollar liabilities. Dilip Parmar of HDFC Securities said spot USD/INR remains bullish, with support at 96.10 and a retest of the record high around 97.

The BSE Sensex tanked 715.06 points to 76,755.05, while the NSE Nifty50 declined 191.45 points to 23,996.25. Banking and financial stocks led the sell-off as rising bond yields and macroeconomic uncertainties weighed on sentiment. The rally in crude above $90 has raised concerns over India's import costs, a widening current account deficit, and elevated inflation.

Pranav Mer of JM Financial said there are no signs of a ceasefire, but even if one were imposed, Brent is unlikely to fall below $70 per barrel. Anindya Banerjee of Kotak Securities cautioned that any strike on major Gulf export infrastructure could force a retest of $95 to $100. Foreign institutional investors remained cautious, though they turned net buyers of equities worth Rs 1,650.16 crore on Tuesday. The dollar index traded marginally lower at 101.10.