The rupee has seen one of its sharpest declines in recent years over the past two months, with the currency weakening dramatically after the outbreak of the US-Iran war at the end of February triggered a global oil shock, intensified foreign capital outflows, and raising concerns over India’s external sector stability. 

From trading near the 90-91 range against the US dollar in late February, the rupee has steadily plunged to successive record lows, breaching the psychologically significant 95-mark this week and touching an all-time intraday low of 95.86 on Thursday. 

The rupee opened on a weak note and depreciated 20 paise in early trade on Thursday, weighed down by higher crude oil prices and mounting concerns over the escalating West Asia conflict. The currency has now weakened by over 6% against the US dollar since the conflict began, making it Asia’s worst-performing currency so far in 2026. 

Analysts said the sharp depreciation reflects the growing vulnerability of the Indian economy to geopolitical shocks, particularly due to the country’s heavy dependence on imported crude oil. 

Iran war triggered major shock 

The rupee’s decline accelerated soon after tensions between the US and Iran escalated into open conflict on February 28, rattling global commodity and currency markets. On March 2, the rupee fell to a one-month low as oil prices surged and investors rushed towards safer dollar assets amid fears of supply disruptions through the Strait of Hormuz, one of the world’s most critical oil transit routes. 

India, which imports nearly 90% of its crude oil requirements and around half of its natural gas consumption, emerged as one of the most vulnerable Asian economies to the energy shock. The conflict sharply increased concerns that disruptions in oil supplies from West Asia could widen India’s current account deficit and trigger imported inflation. 

By mid-March, the rupee had crossed the 92-per-dollar mark for the first time. On March 12, the currency touched a then-record low of 92.35 amid another spike in crude oil prices and rising fears over prolonged energy supply disruptions. 

Pressure intensified further by March 20 when the rupee breached the 93-per-dollar level for the first time in history. Markets feared that a prolonged Iran conflict could damage India’s macroeconomic stability. 

Crude prices become the biggest threat 

The biggest trigger behind the rupee’s collapse has been the sharp rise in crude oil prices. Brent crude prices climbed steadily above the $100-per-barrel mark amid concerns that the Strait of Hormuz could face prolonged disruptions because of the conflict.  

The situation worsened further in April after reports emerged of fresh US moves targeting Iranian ports, triggering another surge in oil prices. The rupee logged its steepest fall in two weeks on April 13 as crude prices again crossed the $100-mark. 

Temporary ceasefire signals between the US and Iran briefly offered some respite to the rupee in early April. On April 10, the currency registered gains for a second consecutive week after oil prices corrected sharply following reports of a short-term truce. However, the relief proved short-lived as geopolitical tensions resurfaced. 

FPI outflows intensify pressure 

Sustained foreign portfolio investor (FPI) outflows also worsened the rupee’s decline. Global investors increasingly shifted money towards safer US assets as geopolitical uncertainty, elevated oil prices, and expectations of prolonged higher US interest rates reduced appetite for emerging markets like India. 

Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., warned that continuous rupee depreciation is emerging as a major macroeconomic threat for India. “This year began with rupee at 90 to the dollar. Since then, it has steadily declined to the present level of 95.86 to the dollar. If crude remains elevated for an extended period, rupee will move to 100,” Vijayakumar said. 

He added that sustained FPI selling remains another major drag on the currency. “Money is moving into markets like the US, Japan, South Korea and Taiwan which are doing very well. So long as the outperformance of these markets and the underperformance of India continues, FPIs will continue to sell, which, in turn, will further drag the rupee down,” he said. 

According to Vijayakumar, the situation may improve only if tensions ease in the Strait of Hormuz and crude oil prices decline meaningfully. 

The Reserve Bank of India (RBI) has repeatedly intervened in the foreign exchange market to slow the rupee’s fall. 

According to reports, state-run banks were seen selling dollars on behalf of the RBI during several trading sessions over the past two months to curb excessive volatility and prevent disorderly market movements. The government also raised import duties on gold and silver from 6% to 15% to conserve foreign exchange reserves and curb non-essential imports.  

Inflation risks and sectoral impact 

A weaker rupee raises the cost of imports such as crude oil, chemicals, electronics, and industrial raw materials, increasing inflationary pressure across sectors. Companies dependent on petroleum-based inputs, aviation firms, and electronics manufacturers are expected to face margin pressure if the rupee remains weak for a prolonged period. 

At the same time, export-oriented sectors such as pharmaceuticals, textiles, and information technology could benefit as dollar revenues translate into higher rupee earnings. 

Vijayakumar said pharmaceuticals may remain relatively resilient as global demand for medicines remains inelastic, while textile exporters could also benefit from rupee weakness. However, he noted that the IT sector, despite being a potential beneficiary of currency depreciation, may continue to remain under pressure due to concerns arising from the ongoing AI-led disruption in the global technology sector.