The Indian rupee and euro faced sharp depreciation as heightened US-Iran tensions pushed global crude oil prices above $85 per barrel, driving investors toward the safe-haven US dollar. The rupee, opening marginally stronger, quickly surrendered gains to trade near its all-time low of 83.50 against the greenback, while the EUR/USD pair slipped below the 1.0800 handle during European trading.
The surge in Brent crude—up on reports of additional US naval deployments to the Persian Gulf and Iranian warnings of retaliation—directly widens India’s trade deficit, with every $10 per barrel rise potentially adding 0.4–0.5% of GDP to the current account deficit. Forex traders noted heavy dollar demand from oil importers and marketing companies, amplifying downward pressure on the rupee. Similarly, the eurozone faces increased import costs and recession risks, as European energy markets remain highly exposed to potential Strait of Hormuz disruptions. The European Central Bank now confronts a tougher policy trade-off between curbing inflation and supporting faltering growth.
The Reserve Bank of India may intervene by selling dollars to curb excessive volatility, but its capacity is limited by reserve adequacy and inflation concerns. Meanwhile, the broader risk-off sentiment benefits the dollar as the world’s primary reserve currency, leaving both the rupee and euro vulnerable until diplomatic de-escalation materializes.
