War-struck rupee: If the oil shock persists, India will need to widen its crisis response toolkit

“‘It depends’ is almost always the right answer to any big question,” said Linus Torvalds, the software genius behind the Linux operating system’s kernel. As the Indian rupee continues to weaken, one of today’s big questions is this: What policy options does India have? The right answer is that it depends—on how long the war continues. More specifically, on how long the Strait of Hormuz remains shut to oil tankers.

The price of Brent crude oil hit a high of nearly $120 per barrel on 9 March, surging by about 66% since the Iran war started on 28 February. Brent has dipped, but threatens to go into three digits again. We import almost 90% of our crude-oil needs and a larger proportion of our natural gas, with a sizeable portion of these shipments now trapped in the Gulf by the war.

This dims the prognosis for our trade deficit, inflation, fiscal position and rupee’s value against the dollar. The rupee was Asia’s worst-performing major currency in 2025. It was suffering from capital market outflows and weak net foreign direct investment (FDI) even before the war started.

And has been on a downward path since. On Thursday, it again tested a historic low of 92.35 to the dollar. Foreign institutional investors have reportedly pulled out more than ₹21,000 crore from Indian markets in March so far.

The Gulf states are home to some 10 million Indian expats who account for 38% of our inward remittances. Prolonged hostilities are bound to impact the money sent home from that warzone. Meanwhile, as importers rush to take cover, dollar demand is sure to rise.