New Delhi: What explains the Indian rupees woes? As it routinely closes at “historic lows”, most recently at 94.85 to the US dollar on March 27, this is a question that’s making not just national but international headlines. The government’s claim that the rupee is falling only with respect to the dollar, and not other currencies, does not stand up to scrutiny.The rupee has been termed Asia’s “worst performing currency”, doing markedly worse than the yuan, the rupiah and other peer currencies.Over the last year, Union finance minister Nirmala Sitharaman has sought to explain away the fast-paced fall of the value of the Indian rupee vis-a-vis the US dollar many times – from saying that global uncertainty is at play to making statements like, “The rupee will find its own level.” This year’s economic survey added that while the rupee is “punching below its weight”, this does not reflect the health of the Indian economy or “India’s stellar economic fundamentals” . A new report by a large Japanese bank, MUFG, however, says that the falling rupee reflects something more worrying, from the Indian perspective – and that even if the most pressing global shock, oil prices, stabilise to pre-war levels, the rupee will remain at quite a low position against the dollar.“We see the Indian Rupee as vulnerable and USD/INR likely rising above the 95 levels if the Iran and Middle East conflict is sustained and the Strait of Hormuz remains closed,” the report notes.In the best case scenario they have presented, where the US-Israel war on Iran ends after March and oil prices fall to pre-war levels of about $80/bbl, the Indian rupee will go up from 92 to the dollar in March 2026 to 93.5 in December 2026. If oil global prices stay where they are – at about $100/bbl – the rupee will likely close the year at 95.5 to the dollar. If the conflict intensifies, and oil prices rise to about $120/bbl and stay there, the rupee will be at 97.5 to the dollar come December. While the MUFG report focuses on scenarios depending on whether or not we see a de-escalation in the conflict, it makes clear that the value of the rupee is going to fall through the year no matter what. It is only the degree of the drop that differs across contexts. This aligns with what several experts in India too have been saying – that the drop in the rupee’s value points to structural issues. As economist Prabhat Patnaik recently wrote, speculation and market analysts’ predictions around the dropping value of the rupee have continued despite the Reserve Bank of India’s attempts to stem the fall.The Strait of Hormuz closure, the report states, is hitting India and Asia especially hard; “…the vulnerability specifically in India’s case comes from Liquified Petroleum Gas (LPG), with virtually all of India’s LPG and Natural Gas Liquids imports coming from the Middle East. In addition, 60% of India’s imports of natural gas comes from the Middle East, and in particular Qatar.” While a few ships carrying oil and heading for India have passed through the Strait of Hormuz since the conflict began, foreign minister S. Jaishankar has made clear that there is no “blanket deal” for Indian vessels.The MUFG also points to another concerning factor – that the Indian economy may face second-order consequences such as rising fertiliser and food costs, and reduced remittances from the Middle East. “The indirect effects across a range of sectors could also be meaningful for India beyond the first order impact, and ultimately points to a stagflationary environment of higher inflation and weaker growth with a weaker Indian Rupee a key outcome as well,” the report notes. “With possible production and supply chain disruptions negatively impacting energy-intensive sectors such as manufacturing, transportation, travel, and food production, a lengthy Strait of Hormuz closure scenario may well morph into something akin to COVID lockdowns and coupled with sharp increases in commodity prices, but more concentrated in specific sectors given the very different origin of today’s shock.”Rising oil prices will also weigh on India’s foreign exchange reserves, and MUFG estimates that “every US$10/bbl increase in oil prices increases India’s current account deficit by 0.4-0.5% of GDP”.On the whole, rising oil prices will have an impact on India’s economic growth – “…we estimate that every US$10/bbl increase in oil prices cuts GDP growth in India by around 0.1-0.2pp and raises inflation by around 0.2pp in India.” “Our current GDP forecasts for India is 7% for FY2026/27, and if oil prices rise above our baseline assumption of US$70/bbl say to US$100/bbl on a sustained basis, growth will likely come in below 6.5% for instance,” the report states.