Rising Oil and US Tariffs Push Indian Rupee Toward 97.50
The Indian rupee opened slightly higher but remains under severe pressure from surging crude prices and looming US tariffs, testing the central bank's ability to defend the currency.
The Indian rupee opened eight paise higher at 96.49 against the US dollar on Thursday, but the modest recovery masks deepening vulnerabilities for the world's third-largest oil importer. The currency had settled at 96.5650 the previous session, hovering near its weakest level in over two months.
Surging crude oil prices remain the primary drag on the rupee. Brent crude has climbed close to $95 a barrel, driven by five months of Middle East conflict and fresh Houthi threats targeting the Red Sea trade corridor. Traders warn that any worsening of supply disruptions could push prices toward the $100 mark, directly threatening India's trade balance.
Compounding the energy shock are mounting trade risks with the United States. Washington has proposed tariffs of up to 12.5% on Indian imports, while US President Donald Trump has outlined a timeline for generic drug tariffs starting at 100% and rising to 200% after a two-year exemption. Because the US buys roughly $9.7 billion, or 38%, of India's pharmaceutical exports, the sector faces significant exposure.
The Reserve Bank of India has attracted robust foreign inflows to prevent a sharper depreciation, but its defensive capacity is narrowing. Forex reserves have slipped from around $680 billion in May to nearly $675 billion, indicating incoming dollars are being deployed to defend the currency rather than stockpiled. Additionally, the RBI's sizeable forward dollar sales position limits its flexibility to intervene aggressively if selling pressure intensifies.
Analysts expect the currency to establish a higher trading range given the overlapping headwinds. "The close above 96.50 indicates that USD/INR may be establishing itself in a higher range," said Amit Pabari, managing director of the research team at CR Forex Advisors. "With oil prices, geopolitical tensions, and trade uncertainties all working against the rupee, 97.30–97.50 now looks like a realistic target and could be seen at any point in time."
For investors and corporates, the combination of elevated energy costs, shipping disruptions, and export tariffs points to a structurally weaker currency environment. While immediate support sits at the 96.00 to 96.10 zone, the path of least resistance points upward, raising hedging costs for domestic importers.
