A sharp spike in global oil prices following Israeli airstrikes on Iran sent shockwaves through financial markets on Friday, prompting the Reserve Bank of India (RBI) to intervene and curb a steep decline in the Indian rupee.
The geopolitical escalation sparked broad risk aversion: Asian currencies and equities tumbled, U.S. equity futures slipped, and safe-haven assets like gold and the U.S. dollar rallied. Brent crude surged as much as 11% intraday, reflecting fears of supply disruptions from the region.
As a result of the oil shock, the rupee dropped to 86.20 against the U.S. dollar—its weakest level in two months. The RBI is believed to have intervened by selling dollars through state-owned banks, helping stabilize the currency near 86.05. By the end of trading, the rupee had settled slightly stronger at 86.12. Market participants noted that the RBI often steps in during external shocks to avoid excessive currency volatility.
Oil Spike Worsens India’s Economic Vulnerabilities
India’s reliance on imported oil, accounting for 80–85% of its crude needs—makes it especially susceptible to surging energy prices. Higher oil prices widen the trade and current account deficits, fuel inflation, and increase dollar demand from refiners, all of which place additional pressure on the rupee and complicate monetary policy.
The heightened uncertainty also pushed up forward premiums across the curve. The 1-year USD/INR annualized premium rose 6 basis points to 1.92%, indicating market concerns about the broader economic fallout from sustained high oil prices and the potential for tighter monetary conditions in India.
Economists caution that the risk of further escalation in the Middle East remains high. As the situation unfolds, oil prices are expected to remain volatile, keeping investors and policymakers on edge in the coming weeks.
(This story is published from a syndicated feed)