Rupee tumbles to record low as Iran war fuels oil shock and market anxiety – Firstpost

The Indian rupee sank to a fresh all-time low on Thursday as surging crude oil prices, persistent foreign fund outflows and mounting fears over the Iran war intensified pressure on Asia’s third-largest economy, forcing traders to increasingly rely on expectations of central bank intervention to steady the currency.

The rupee slid as much as 20 paise to touch 95.86 against the US dollar in intra-day trade, extending a sharp losing streak that has seen the currency hit record lows in every session since Tuesday. It later hovered near 95.85, taking its decline this week to 1.4 per cent and cementing its position as Asia’s worst-performing currency in 2026.

The latest selloff reflects growing concern that India’s heavy dependence on imported energy could leave the economy exposed if tensions in West Asia escalate further and crude prices remain elevated for an extended period.

Brent crude traded above $106 per barrel on Thursday as investors tracked the closely watched summit between US President Donald Trump and Chinese President Xi Jinping in Beijing, where discussions on the Iran conflict, trade tensions and global energy security dominated market attention.

India imports nearly 90 per cent of its crude oil requirements and about half of its natural gas needs, making the rupee especially vulnerable during periods of geopolitical instability and rising commodity prices.

At the interbank foreign exchange market, the rupee opened at 95.74 before extending losses amid strong dollar demand from oil importers and continued foreign portfolio outflows from Indian assets.

State-run banks were seen selling dollars during the trading session, likely on behalf of the Reserve Bank of India (RBI), according to traders, suggesting the central bank continued to actively defend the currency against excessive volatility.

The RBI has already spent foreign exchange reserves and rolled out rare regulatory measures in recent weeks to slow the rupee’s decline after the Iran war triggered a fresh wave of pressure on emerging market currencies.

Markets are closely watching whether the Trump-Xi summit can produce any progress on restoring stability to global energy flows, particularly through the Strait of Hormuz, a critical shipping route for oil supplies.

Some analysts believe Beijing could play a role in encouraging Tehran to strike a deal with Washington that would ease tensions and reduce risks to oil shipments.

Xi on Thursday described 2026 as a “historic, landmark year” for China-US relations as he welcomed Trump to Beijing for two days of talks expected to cover Iran, tariffs, artificial intelligence competition and Taiwan.

The divergence between Asian currencies was also evident on Thursday, with China’s yuan climbing to a three-year high against the dollar even as the rupee continued to weaken sharply.

The yuan has been supported by China’s strong export performance and large trade surplus, while India’s external position has deteriorated due to higher import costs and capital outflows.

The dollar index, which measures the US currency against six major peers, edged lower to 98.48, but the softer dollar offered little support to the rupee because of India-specific concerns surrounding oil imports and widening external deficits.

Prime Minister Narendra Modi this week
urged citizens to conserve foreign exchange reserves, while the government has raised import duties on precious metals in an effort to curb non-essential imports.

Petroleum Minister Hardeep Singh Puri has also warned that domestic fuel prices may need to rise if global crude prices remain elevated.

RBI Governor Sanjay Malhotra said earlier this week that while the central bank could look through temporary supply shocks, prolonged oil-driven inflation may eventually require policy action.

With oil prices staying above $100 per barrel and geopolitical tensions showing little sign of easing, analysts expect the rupee to remain under pressure in the near term despite continued RBI intervention.

With inputs from agencies.