The Indian rupee opened flat at 95.55 against the US dollar on Thursday, 9 July, as renewed hostilities between the US and Iran reignited concerns over a spike in crude oil prices.
Brent crude, after surging more than 8% over the previous two sessions, climbed another 1% during Asian trading after the US military launched fresh strikes on Iran, prompting retaliatory attacks by Iran on Kuwait and Bahrain.
The impact of rising crude prices on the rupee had eased in recent weeks, but the latest escalation in the Middle East has brought those concerns back into focus. For India, a major crude oil importer, higher oil prices could widen the current account deficit, stoke inflationary pressures, and weigh on economic growth.
Elevated crude prices could also dampen foreign portfolio inflows, which had only recently started to recover.
The renewed oil price rally has already unsettled Indian financial markets. The benchmark 10-year government bond yield jumped 7 basis points on Wednesday, marking its biggest single-session rise in more than three months, while the benchmark equity indices tumbled around 2%, recording their sharpest one-day decline in over three months.
