Rupee hits record low as renewed West Asia risk rattles markets

The Indian rupee slid to a fresh record low on Tuesday, as renewed geopolitical risks in West Asia, coupled with a sharp spike in global crude prices, rattled financial markets and deepened concerns over India’s macroeconomic outlook.

The currency weakened to an all-time low of 95.42 per US dollar in real-time trade, extending losses after breaching its previous record of 95.33 last week.

The decline comes amid heightened volatility following an escalation in tensions between the United States and Iran.

The latest trigger has been a renewed military confrontation centred around US President Donald Trump’s “Project Freedom”, aimed at reopening the Strait of Hormuz. The flare-up has reignited fears of supply disruptions, pushing oil prices sharply higher.

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Oil surge compounds pressure

Global crude benchmarks surged in response to the escalating conflict. Brent crude settled at $114.06 a barrel, up 5.45 per cent, while US West Texas Intermediate (WTI) hovered near $105.02 after briefly crossing $105 in early trade.

The Strait of Hormuz, through which roughly one-fifth of global oil supply passes, has returned to the centre of market anxiety. Military exchanges, attacks on shipping infrastructure, and heightened risks to commercial vessels have kept investors on edge, even as some shipments resume under US military escort.

For India, the surge in oil prices poses a direct macroeconomic challenge. As a major crude importer, higher energy costs widen the current account deficit, weaken the rupee, and stoke inflationary pressures.

Broader emerging market stress

The rupee’s weakness mirrors pressure across other oil-sensitive Asian currencies, including the Indonesian rupiah and Philippine peso, highlighting broader stress in emerging markets exposed to energy price shocks.

Investor sentiment has also been hit by uncertainty around the Strait’s security. While some vessels have managed to transit under military protection, analysts caution that such arrangements may only provide temporary relief and could even heighten the risk of further escalation.

Foreign outflows accelerate

Adding to the rupee’s woes are sustained foreign portfolio outflows. Overseas investors have net sold more than $20 billion worth of Indian equities between March and early May, reflecting a flight to safety amid geopolitical uncertainty and a stronger US dollar.

The outflows have weighed on domestic markets and intensified pressure on the currency, with traders warning that continued escalation in West Asia could trigger further capital flight.

Policy dilemma for RBI

The Reserve Bank of India faces a complex policy challenge as external pressures mount. While the central bank may step in to smooth volatility, defending the currency becomes increasingly difficult in the face of persistent oil-driven shocks and capital outflows.

With inputs from agencies.