Indian Rupee Hits Record Low Near 97 Against US Dollar Amid Unprecedented Strait of Hormuz Crises

Synopsis: The Indian rupee, already Asia’s worst-performing currency in 2026, has been pushed to a record low of nearly 97 per US dollar by a historically unprecedented supply disruption at the Strait of Hormuz and with US sanctions waivers on Russian crude purchases due to expire on June 17, Bank of America Securities is forecasting a further slide to 98 by July; the Reserve Bank of India is widely expected to hold rates in the near term before delivering two 25-basis-point hikes in October and December.

India’s currency and energy markets are navigating the most severe external shock in decades. A military conflict involving the United States, Israel, and Iran that escalated in early 2026 has severely restricted the Strait of Hormuz  the chokepoint through which roughly 20 percent of global oil flows  triggering what the International Energy Agency has described as the largest supply disruption in the history of the global oil market, one that eclipses the combined impact of the major energy shocks of the 1970s.

For India, the consequences are acute. The country imports approximately 90 percent of its crude oil requirements and 50 percent of its natural gas, meaning the price shock feeds directly into import bills, the current account deficit, domestic inflation, and ultimately the currency. As of June 3, 2026, the rupee was hovering around 95.77 per US dollar, after having struck a record low of nearly 97 on May 20. It is the worst-performing currency in Asia year-to-date.

BofA’s Warning

David Hauner, head of global emerging markets fixed income strategy at Bank of America Securities, has forecast the rupee could weaken further to 98 against the US dollar by July, a level that would represent a new historic low. The timeline aligns precisely with a critical geopolitical deadline.

When the Middle East conflict broke out, the Trump administration granted India time-limited sanctions waivers to continue purchasing seaborne Russian crude, a concession designed partly to prevent a global demand collapse. However, US Secretary of State Marco Rubio has recently signalled that Washington intends to close this channel, with the current waiver extension set to expire on June 17, 2026.

The removal of Russian crude as a competitively priced alternative  at a moment when Middle Eastern supply routes remain constrained  would leave India with fewer options and higher average import costs, reinforcing the bearish near-term trajectory for the currency.

Capital Flight and the RBI’s Calculus

Foreign portfolio investors have pulled approximately $27 billion from Indian equities so far in 2026, a scale of outflow that reflects not just currency risk but a broader reassessment of emerging market exposure in a high-energy-price, elevated-volatility environment. The selling pressure has weighed on the rupee through multiple channels: equity liquidation creates dollar demand, and a weakening currency in turn raises the hedging cost for investors still holding Indian assets, incentivising further exits.

The Reserve Bank of India faces a classic monetary policy dilemma. Raising interest rates would support the currency by widening the interest rate differential with the US and reducing the incentive for capital outflows, but doing so aggressively risks choking domestic demand at a moment when growth is already under pressure from fuel prices and supply-side constraints. BofA’s base case is that the RBI will hold at its near-term meeting  resisting the calls of analysts who anticipate an immediate hike this week  and instead deliver two 25-basis-point increases in October and December 2026, a sequencing that prioritises growth stability in the short term.

Demand-Side Response

On the domestic front, the Indian government has initiated a voluntary fuel rationing movement aimed at reducing nationwide demand by up to 20 percent. The measures include state-backed promotion of work-from-home arrangements, carpooling, accelerated public transport usage, and faster adoption of electric vehicles. The campaign is partly symbolic: a 20 percent demand reduction target is aspirational rather than enforceable  but it signals the government’s recognition that the energy shock is structural rather than transient, and that supply-side relief through diplomacy may not arrive before import bills balloon further.

Broader Implications

The severity of the current episode distinguishes it from previous rupee weakness cycles that were driven primarily by domestic fiscal concerns or standard global risk-off sentiment. This time, the driver is a supply shock of genuinely historic scale, compounded by a sanctions architecture that is narrowing India’s alternative import corridors. The simultaneous pressure from FPI outflows, a widening energy import deficit, and an expiring waiver deadline creates a window of maximum vulnerability for the rupee through late June and July  precisely the period BofA’s forecast is targeting.

For equity investors, the currency pass-through to earnings will vary sharply by sector. Importers, particularly oil marketing companies, airlines, and chemical companies with dollar-denominated raw material costs  face direct margin erosion. Exporters, especially IT services and pharmaceutical companies with dollar revenue, benefit from a weaker rupee. The RBI’s rate trajectory also matters for rate-sensitive sectors: banking and real estate stocks will be watching the October and December policy meetings closely.

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