War-driven oil hits rupee, any further slide risks economy feeling strain
The Indian rupee’s slide since the Iran conflict, set off by the larger US-Israel war in West Asia, shows pressure across Asian currencies rather than just a domestic problem. Last Friday, the rupee crossed ₹93 per dollar for the first time, moved close to ₹94, and saw its steepest drop in four years. It has declined nearly 2 percent this month since hostilities escalated on March 2, driven by a combination of surging crude oil prices, global risk aversion, sustained foreign portfolio outflows and a firm US dollar.
The pressures are not unique to India. Across Asia, currencies such as the Japanese yen, South Korean won, Indonesian rupiah, Malaysian ringgit, Philippine peso and Thai baht have all fallen against the dollar, reflecting the region-wide impact of higher oil prices and global uncertainty. A stronger dollar index has added to the pressure, while foreign investors have withdrawn over $8 billion in March alone, the biggest outflow since January 2025. Most countries have responded by allowing their currencies to weaken in a controlled way, tightening liquidity when needed and using reserves to manage sharp swings rather than fixing a set level.
In India’s case, the rupee’s weakness is amplified by its dependence on imported crude. Brent prices have risen about 40 percent since March 2, sharply widening the current account deficit and increasing the import bill. Earlier trends show that when oil prices remain between $90 and $110 per barrel, the rupee tends to drop by around 6.5 to 7.5 percent, indicating further downside risk if prices stay high. Ongoing capital outflows have added to the pressure. The RBI has reportedly spent around $15 billion this month to reduce volatility, rather than trying to hold the rupee at a fixed level. This helps conserve reserves while also showing that it will act to prevent excessive swings in the currency.
For now, the rupee is likely to stay in a weaker range of ₹93-95, with the possibility of moving closer to ₹100 if oil prices stay high and capital outflows persist. In this way, the rupee is tracking the wider trend across Asia, where global shocks, more than domestic factors alone, are driving currency movements. As it is, the rupee ended 2025 as Asia’s worst-performing currency amid trade-war uncertainties and foreign capital outflows; any further depreciation will be devastating for the economy.