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n the morning on Wednesday, traders in the forex market in Mumbai saw the rupee open at 95.40 versus the US dollar, go lower, and close at 95.42—lower by 6 paise from its previous level. It seems to be a very small number. But it is not.
The rupee dropped 6 paise to 95.42 versus the US dollar on Wednesday morning, as the price of Brent crude oil surged towards USD 90 per barrel amid fading hopes for a swift deal between the US and Iran, thus opening the Strait of Hormuz.
There is a war which started five months ago in a different continent but has become the biggest risk to the Indian economy in 2026.
In Wednesday’s transaction, the futures of Brent crude oil were trading at $89.67 per barrel, which is an increase of 0.9%, whereas the futures of West Texas Intermediate were trading at $83.98 per barrel, an increase of 0.9%.
Contrarily, in the previous week, there was an increase in the price of futures of Brent by 7%. Such a one-week price rise usually happens within one quarter.
Domestic stocks were lower as the price of Brent crude futures remained close to $89 a barrel amid rising fears about potential long-term disruptions in supply. Foreign exchange departments are keeping an eye out for the next psychological level.
As Brent is at around $90 a barrel, 95.50 becomes the next level to focus on, followed by 95.80-96.00 in case of high levels of oil prices, said Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors.
The import of over 80% of crude requirements makes every dollar increase in the price of a barrel of oil mean a dollar cut directly from the trade balance—and the rupee.
This is not a case of market malfunction; this is a case of war. The 2026 Strait of Hormuz crisis started from 28 February to date and involved Iran, the United States, Israel, and international shipping companies, resulting in a worldwide fuel crisis, an air war conducted by the USA against targets in Iran, a blockade of Iran by the US Navy, and the US Navy escorting mission.
The results have been catastrophic: one tug boat sunk, seventeen ships damaged, two ships hijacked, and twelve sailors dead or missing, in addition to one port worker in Bahrain. But that picture got even gloomier just this week.
Attacks by Iran in Hormuz and by Houthi fighters in the Red Sea have continued to keep ships away from those two areas, while the American navy continues to reroute 20 additional commercial ships away from Iran this week under its sea blockade. The diplomatic situation also shows no signs of progress at all, as neither side can seem to speak the same language.
Trump put another demand on the table in talks with Iran this Monday, stating that compensation was needed for old grievances—after Iran itself called for compensation before it would reopen the strait to traffic.
Trump has also claimed success in securing the strait militarily, announcing that the US Navy has cleared the strait of all mines and now controls the strait, and "it's open now." There was just some hope shown several days before.
Iran and Oman had been described as very close to reaching an agreement about the passage through the strait, although the foreign minister of Iran said that the passage would be reopened only after meeting certain conditions, one of which is paying compensation to the USA.
The hope just faded, and President Trump said that he would let economic sanctions work on Iran rather than continue his military actions against it.
Although the trading community is pricing paise and cents, the battle is continuing on its own. According to figures in the US database, by the beginning of August, there have been 18 deaths and 687 injuries of American troops since the war started on February 28.
These include four deaths and 270 injuries after July 7.
In Tehran, Iranian citizens are preparing themselves for a prolonged fight. A local citizen has made it clear in the local media that the strait should be held by Iran "at any cost" regardless of the threat level.
The RBI has not been a mere spectator either. RBI intervention, with government-owned banks reportedly being active sellers of dollars to the RBI's directive, has helped keep the rupee from falling further despite the price of Brent having crossed $87 per barrel, with prospects of a Hormuz deal diminishing.
Foreign institutional investors have purchased Indian stocks worth Rs 1,974.76 crore net in a single trading session, which has, along with the intervention from RBI, ensured that a bad situation did not turn into a rout.
However, firefighting is not solving the underlying fire. Every trading day with the Strait in dispute leads to India’s import costs rising a little further.
Markets have no hesitation about the implications.
If a sustained move to or above $90 oil, along with the continuing rupee softness, is witnessed, there would be increased strain on India’s import bill, which would further lead to an inflation and corporate earnings worry — the exact double-whammy which makes the RBI take notice and put its foot down on the rate front while squeezing consumers on the fuel pumps and grocery bills simultaneously.
It is not the first time this year that the rupee has faced a test from this very war.
The earlier stages of the conflict saw the rupee touch new lows several times, with analysts at one point raising alarm bells that the rupee could see a freefall to 100 against the dollar if the conflict dragged on for long.
Every time a brief lull in hostilities was followed by yet another spark. August 2026 seems to be part of the same story, except that it is unfolding against a global oil market that has five months of time to become twitchy.
