Rupee opens 16 paise down at 86.75 after US strikes on Iran send crude higher

Indian rupee

The rupee opened 16 paise down on June 23 as crude prices rose after US strikes on Iran nuclear sites over the weekend triggered worries of another front opening in the restive region, impacting energy supplies.

The rupee opened at 86.745 against the dollar after closing the previous session at 86.59.

"Crude oil prices extended gains for a third straight week amid rising geopolitical tensions and a sharper-than-expected drawdown in US inventories. The ongoing hostilities between Israel and Iran have heightened supply concerns across the Middle East, a region critical to global oil exports," said Rahul Kalantri, VP Commodities at Mehta Equities Ltd.

Early on early June 22, the conflict between Iran and Israel took a dramatic turn after US President Donald Trump confirmed that American warplanes bombed three nuclear sites in Iran, including the Fordow uranium enrichment plant, a key part of Tehran’s atomic infrastructure buried deep within a mountainside near Qom.

The strikes were the first time the US directly struck Iran’s nuclear facilities since hostilities began, with Iran vowing retaliation. Iran’s parliament is reported to have backed closing the Strait of Hormuz through which around 20 percent of the world’s oil and gas demand flows  following US bombing.

The widening conflict fired up crude prices in the international market and dollar index, putting pressure on the domestic currency.

Since the start of this escalation, the benchmark Brent crude prices have shot up sharply and remain on the higher side. Higher crude puts pressure on India, which meets 80 percent of its energy demand through imports, and demand for dollars from oil importers increases leading to falling domestic currency.

Brent was trading at $78.16 a barrel, up $1.15 or 1.49 percent from previous close of $77.01.

Strait of Hormuz and crude prices

The strait lies between Oman and Iran and links the Mideast Gulf north to the Gulf of Oman to the south and the Arabian Sea beyond.

Goldman Sachs flagged risks to global energy supply amid concerns over potential disruption in the Strait of Hormuz that would lead to significant spike in oil and natural gas prices, a Reuter report citing the bank’s June 22 note said.

The bank estimated Brent crude could briefly peak at $110 if oil flows through the critical waterway were halved for a month and remained down by 10 percent for the following 11 months, the report said.

Prices would then moderate, with Brent averaging around $95 in the fourth quarter of 2025, the report said.

On June 22, Moneycontrol reported that Indian rupee is expected to breach 87-mark due to heightened global uncertainties between Israel and Iran.

Currency experts believe that the local currency will trade in the range of 86-87.50 against the dollar.