The Indian rupee edged higher in early trading on Monday, supported by mild dollar selling from foreign banks, but its gains were severely restricted by elevated crude oil prices driven by escalating Middle East tensions. The rupee was quoted at 92.82 against the US dollar, a marginal 0.1% gain from its previous close of 92.9250.
Brent crude oil futures climbed more than 5% as uncertainty grew over a ceasefire in the Iran conflict. Tensions escalated after the United States seized an Iranian cargo ship, prompting Tehran to vow retaliation and reject fresh peace talks. This surge in oil prices creates a significant headwind for the rupee, given India's heavy reliance on crude imports, as higher prices typically increase dollar demand from importers.
Most Asian currencies traded lower, with the Korean won leading losses, falling about 1%. Indian equities also remained under pressure, reflecting broader risk-off sentiment. Despite these external pressures, traders noted that recent regulatory measures by the Reserve Bank of India (RBI) have helped stabilise the rupee by targeting speculative trading and easing dollar demand from major buyers like state-run oil refiners.
Market focus remains intensely on the Strait of Hormuz, a critical global energy artery. Despite Iran stating the strait was closed, shipping data from Kpler showed more than 20 vessels passed through on Saturday, the busiest day since March 1, offering markets some comfort that trade flows continue. Analysts from MUFG noted, "Markets remain sensitive to Middle East developments, with focus on whether de-escalation signals are credible or merely episodic noise driving volatility."
