Rupee Sinks to Record Low of 95.74 Against Dollar as Oil Supply Risks Strain India's Economy

The Indian Rupee hit a psychological breaking point on Wednesday, touching an intraday low of 95.74 at the interbank foreign exchange market. Market sentiment turned risk-off after US President Donald Trump rejected Iran’s latest peace proposal, describing it as "totally unacceptable."

This geopolitical scenario has reignited fears of a permanent disruption in the Strait of Hormuz. For an economy like India, which imports 85% of its crude, the surge in Brent prices to $107 per barrel has created a massive demand for Dollars, leaving the Rupee vulnerable and exhausted.

The rupee has slid somewhere between 4.7% to 5.2% since the West Asia conflict began in February. 

Foreign Investors Exit 

The currency’s pain is being compounded by a mass exodus of foreign institutional investors (FIIs) from Indian equities. Since the start of 2026, overseas funds have pulled out over $21 billion, surpassing the total outflows of the previous year.

As investors rush toward the safety of the US Dollar, the Greenback has strengthened globally, with the Dollar Index trading near 98.28. High US bond yields and expensive domestic valuations are making Indian markets less attractive, further starving the Rupee of necessary capital support.

RBI Action

The Reserve Bank of India has reportedly been active in the market, with state-run banks seen selling Dollars to defend the Rupee. However, the scale of the energy shock is testing the central bank’s limits. India’s forex reserves, which peaked at $728 billion in February, have already seen significant erosion as the RBI tries to smooth out volatility.

While the government recently hiked import duties on gold and silver to 15% to curb non-essential Dollar demand, these moves may only offer temporary relief. Unless crude prices cool or geopolitical tensions in West Asia ease, the Rupee may soon stare at the 96-level against the Dollar.

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