The Indian rupee slumped to an all-time low of 95.40 against the US dollar on Tuesday, 5 May, as a sharp rally in global crude oil prices and unrelenting dollar demand kept the domestic currency under severe pressure. The previous session had seen the currency already on the back foot, but the overnight escalation in the Persian Gulf proved to be the decisive blow.
The trigger for the fresh turmoil came from the Strait of Hormuz, where Iran intensified military action, targeting multiple vessels before striking an oil port in the UAE, causing a major fire. The attack marked one of the most significant confrontations since a ceasefire nearly four weeks ago. Consequently, Brent crude futures for July delivery skyrocketed nearly 6 percent, climbing close to $114 per barrel. This surge reignited deep concerns over potential supply disruptions through one of the world’s most critical energy corridors.
The geopolitical flashpoint arrives amid heightened US involvement, with President Donald Trump reiterating that the US Navy would secure safe passage through the strait. Market participants indicated that the renewed hostilities could severely curtail shipping activity, keeping crude prices elevated. Analysts at ANZ Bank noted that such shifts are likely to maintain upward pressure on oil, which remains a key risk factor for the rupee.
Surging crude prices have continued to strain India’s external balance, worsening the terms of trade and fuelling consistent dollar demand. A currency trader at a private sector bank stated plainly, “Unless crude oil prices decline significantly, no substantial relief for the currency is expected.” This sentiment was echoed across trading desks.
Bankers highlighted that relentless dollar purchases by oil marketing companies amplified the headwind. Simultaneously, exporters turned cautious on hedging, while other importers aggressively increased their hedge positions in response to the heightened currency volatility. The pressure on the rupee is compounded by limited capital inflows, which have narrowed the buffers that might otherwise have helped stabilise the exchange rate. Market participants observed that the absence of strong inflows has left the rupee with little immediate support to weather the external shock.
Amit Pabari, Managing Director of CR Forex Advisors, described the challenging environment: “When oil is rallying sharply, defending the rupee becomes an expensive affair. It’s like holding onto an umbrella in a storm that is only getting fiercer. The 95.30–95.50 range will soon act as a strong resistance zone.”
The turmoil spilled over into the debt market as well. India’s sovereign bond yields climbed on 5 May, with the benchmark 10-year yield rising three basis points to 7.04 percent from its previous close of 7.01 percent. Bond prices, which move inversely to yields, declined as the fresh US-Iran tensions over the Strait of Hormuz triggered a sell-off in both debt and currency markets.
