West Asia tensions: Rupee feels heat amid conflict, breaches 92/$ for the first time

MUMBAI: The rupee dropped to a new low of 92.30 in the foreign exchange market as the conflict in the West Asia risks damaging the economy on multiple fronts. The domestic unit breached the 92 level for the first time at the opening and hit a record low before recovering on suspected RBI intervention to close at 92.15.

The rupee has depreciated 2.5% so far in 2026. It has weakened from 89.85 at the end of 2025 to 92.15 currently. The sharpest annual depreciation in the last decade occurred in 2022, when the rupee fell 10.15% following pressure on trade in the wake of Russia's invasion of Ukraine. The currency had fallen 5.22% in the first six months of the Ukraine war, from 75.65 to 79.82.

Economists said that the current conflict in the West Asia could have a much bigger impact than the Russia-Ukraine war, which pushed up energy costs worldwide. Besides pushing up oil and gas prices, the conflict has choked a large chunk of India's exports to the West Asia. More than a third of India's worker remittances come from the West Asia region. While the rupee's depreciation has lagged behind the Korean won, it is more or less aligned with the broader regional decline.

"Given that the rupee was already relatively weak on a REER basis, a disproportionate depreciation versus peer currencies appears unlikely. Much of the current weakness reflects markets pricing in a high probability of further geopolitical escalation; therefore, if tensions fail to intensify, crude prices could ease and the rupee could regain strength," said Abhishek Bisen, head of fixed income, Kotak Mahindra AMC.

During the term of current RBI Governor Sanjay Malhotra (14 months so far, from December 12, 2024, to the present), the Indian rupee has depreciated by 7.94% against the US dollar, from 84.83 to 92.15 on Wednesday. In comparison, during the six-year term of former RBI Governor Shaktikanta Das (December 12, 2018, to December 11, 2024), the Indian rupee depreciated by 15.07% against the US dollar.

"The currency had earlier shown some stability following the Union Budget and the recent US-India trade deal, but the renewed spike in crude prices has reversed part of those gains. If geopolitical tensions persist and oil prices remain elevated, pressure on the rupee could continue in the near term," said Jateen Trivedi of LKP Securities.