Synopsis: Brent crude surged past $96 a barrel, its highest in over six weeks, as the US carried out a twelfth consecutive night of strikes on Iran and Houthi forces struck two Saudi tankers in the Red Sea, while the rupee held broadly stable near 96.49 on strong foreign inflows.
Oil prices extended their rally on Thursday, with Brent crude trading around $97.67 a barrel, up 3.83 percent, after earlier climbing above $98. WTI crude rose to $89.31, up 2.86 percent, marking its strongest level in more than six weeks as geopolitical risks across the Middle East intensified.
The latest leg of the rally followed confirmation from US Central Command that American forces launched a fresh wave of strikes against Iranian military targets at 5:30 pm ET Wednesday, the twelfth consecutive night of such action, aimed at degrading Iran’s capacity to threaten commercial shipping in the region.
Iran’s Revolutionary Guards claimed in response that an oil tanker caught fire after attempting to transit a mined shipping route south of the Strait of Hormuz, with two additional tankers reportedly turning back as Iranian officials asserted control over the waterway and warned vessels against transiting without coordination with Tehran.
Simultaneously, Yemen’s Houthi forces escalated their own campaign, claiming responsibility for strikes on two Saudi-flagged tankers, named Encelia and Layla, in the Bab el-Mandeb Strait, for allegedly violating a naval blockade the group had declared earlier in the week.
Saudi Arabia’s state news agency confirmed a fire on one of the vessels, while one of the targeted tankers was reportedly carrying Saudi crude destined for India and the other for China. Shipping data showed just 27 vessels crossed the Red Sea chokepoint on Wednesday, including five crude tankers and one LNG carrier, down from 38 crossings the previous day, while 253 energy carriers remained backed up in the Persian Gulf awaiting passage through Hormuz.
Notably, the rally has continued despite a bearish signal from US inventory data, with the EIA reporting commercial crude stockpiles rose by 2 million barrels last week against expectations for a 1.1 million barrel draw.
Under normal conditions this build would have pressured prices lower, but geopolitical risk across both chokepoints has overwhelmed that signal, with traders bracing for continued volatility absent any diplomatic breakthrough. Beyond crude, the broader energy complex moved higher in sympathy, with natural gas up around 1.15 percent, gasoline up 1.17 percent, heating oil up 2 percent, and Urals crude surging over 10 percent on the day.
Rupee Holds Firm Despite Oil Pressure, Aided by Strong Inflows
The Indian rupee opened 8 paise stronger at 96.49 against the US dollar on Thursday, an improvement from Wednesday’s close of 96.5650, even as the fresh surge in oil prices would typically weigh on the currency of the world’s third-largest crude importer. The relative resilience was attributed to robust foreign inflows of $20.72 billion linked to Reserve Bank of India measures, which traders said helped cushion the currency against a larger slide.
That support may prove limited going forward. India’s foreign exchange reserves have declined from around $680 billion in May to nearly $675 billion, suggesting incoming dollar inflows are not being fully retained, while the RBI’s sizeable outstanding forward dollar sales position could constrain its flexibility to intervene more aggressively should pressure on the rupee intensify. Market participants noted that Brent’s climb toward $96, with some now discussing the possibility of prices testing $100 a barrel if disruptions worsen, remains the single biggest headwind for the currency.
Trade-related risks are compounding the pressure. The United States has proposed tariffs of up to 12.5 percent on imports from several countries including India, while President Trump has separately announced that imported generic medicines would remain tariff-free for two years before facing tariffs escalating to 100 percent and then 200 percent. Given the US accounts for roughly $9.7 billion, or about 38 percent, of India’s pharmaceutical exports, this represents a meaningful additional source of currency and trade pressure layered on top of the oil-driven strain.
Amit Pabari, Managing Director of CR Forex Advisors’ research team, said a sustained close above 96.50 would suggest USD/INR is establishing itself in a higher trading range, with 97.30-97.50 now a realistic target if oil, geopolitical tensions and trade uncertainty continue working against the currency. On the downside, the 96.00-96.10 zone is seen as the first significant support level.
Why It Matters for India
India imports close to 85 percent of the crude oil it consumes, meaning Brent’s climb back above $96 revives the same current account and import bill concerns that had briefly eased when prices dipped toward $70 earlier this year. Every sustained dollar increase in crude adds directly to the country’s oil import bill and compounds pressure on both the rupee and domestic inflation expectations.
Sectors reliant on crude-linked inputs, including aviation, paints, chemicals, logistics and oil marketing companies, face renewed margin pressure the longer the current escalation continues, while upstream exploration and production companies stand to benefit from stronger realisations if elevated prices persist. The RBI is widely expected to continue intervening to smooth rupee volatility, even though its actual headroom may be tighter than headline reserve figures suggest once outstanding forward commitments are factored in.
Global Backdrop
The conflict has moved well beyond isolated incidents, with both the US and Iranian-aligned forces now treating tankers as legitimate targets across two of the world’s most strategically important chokepoints simultaneously. With Strait of Hormuz traffic reduced to a fraction of pre-conflict levels and Red Sea crossings falling further as the Houthi blockade intensifies, the risk of a broader, sustained disruption to global energy supply chains appears to be escalating rather than easing. Absent a diplomatic breakthrough, both oil markets and the rupee are likely to remain highly sensitive to daily developments out of the region in the days ahead.
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