Business

Iran war pushes Indian rupee towards a perfect storm

Published: 05:03 AM,Mar 11,2026 | EDITED : 09:03 AM,Mar 11,2026

 

India's hunger for energy imports remains its Achilles heel. Pair that with a war roiling the states of the Gulf, home to some 10 million ​Indian expatriates who account for 38% of the country's inward remittances, and it's easy to see why the ‌U.S.-Israel war against Iran has put the world's fifth-largest economy on edge.

Opposition politicians jeered Subrahmanyam Jaishankar, India's foreign minister, on Monday during his speech in parliament on the conflict after crude shot up to $119 a barrel and the Indian rupee hit a fresh low of 92.35 against the U.S. dollar. ​It was already the worst-performing major Asian currency in 2025.

There will be limited relief from Washington's green light for Indian ​companies, including Reliance Industries, to buy otherwise-sanctioned Russian oil. Juicy discounts on that supply have long since narrowed, and now there will be more competition from other buyers. And in a situation of very limited supply, India's stockpile can ​only meet its needs for 25 days, per a Reuters report citing refining sources. India's demand for liquefied natural gas is a ​problem, too. It imports 80% of its needs from the Middle East. New Delhi curbed supply to industries on Tuesday, a day after extending waiting periods for cooking gas.  

India has multiple levers it can pull to shield consumers from any price shock. New Delhi can ask state-backed fuel retailers like ​Bharat Petroleum and Indian Oil to absorb the increased cost. At a pinch, the government could cut excise duties, albeit at ​the cost of a wider budget gap. Inflation in India is also low: retail prices grew 2.75% year-on-year in January.
Protecting the rupee, however, is ‌harder. Bigger ⁠fiscal deficits in national accounts will hurt. India's central bank intervened on Monday to stem the currency's slide. Though the price of oil receded to $92 per barrel after U.S. President Donald Trump claimed the war would be over 'very soon', it remains volatile. If it held at $100 per barrel for three months, India’s current account deficit could rise to 2% of GDP from the baseline assumption of ​1.6%, according to Gaura Sengupta, ​an economist at IDFC First ⁠Bank. That would be close to the 2.3% level clocked in 2008-09, soon after the global financial crisis.  

India's currency is already suffering from weak net foreign direct investment and capital outflows, in part ​because of worries about the threat new artificial intelligence tools pose to India's services exports. ​A prolonged war ⁠in the Middle East will really grease the rupee's problems.

India does not expect inflation to rise substantially from a jump in global crude oil prices triggered by the war in the Middle East, as domestic price levels remain near the lower ⁠end of ​the central bank's tolerance band, Finance Minister Nirmala Sitharaman said on March 9.

The ​Indian rupee fell to an all-time low of 92.3475 against the U.S. dollar on the same day, as surging crude prices sparked concerns over growth and inflation ​in the world's fifth-largest economy.