The Russia-Ukraine war that erupted in February 2022 sent shockwaves through global markets, indirectly affecting currencies worldwide – including the Indian rupee (INR) against the US dollar (USD). India and the US are not direct participants in the conflict, but the war’s fallout – surging commodity prices, supply chain disruptions, Western sanctions on Russia, and risk-aversion in financial markets – have all played a role in the USD/INR exchange rate. This explainer looks at how the war’s geopolitical and economic consequences influenced USD to INR from 2022 through 2024, touching on India’s discounted oil purchases from Russia, shifts in trade and capital flows, central bank policies, and notable exchange rate fluctuations over this period.
Global Inflation and Safe-Haven Dollar Surge: The outbreak of war in Ukraine in February 2022 disrupted global supply chains and drove up prices of oil, gas, grains and other commodities m.economictimes.com
Rupee’s Steep Depreciation: In the initial days of the war, the Indian rupee plummeted sharply. On February 24, 2022 – the day Russia’s invasion began – the rupee slid by 98 paise against the dollar as markets reacted to the geopolitical shock m.economictimes.com. This set the tone for the year: the rupee entered a downtrend, reflecting global risk aversion and India’s worsening trade outlook due to expensive imports. By October 19, 2022, the rupee breached the ₹83 per USD mark for the first time ever amid unabated foreign capital outflows, soaring crude oil prices, and risk-averse sentiment m.economictimes.com. It closed the year 2022 at ₹82.61 per USD, a depreciation of over 11% from about ₹74.3 at end-2021 m.economictimes.com. This was the rupee’s worst performance in nearly a decade and the steepest fall among major Asian currencies that year m.economictimes.com. In effect, the war in Ukraine – though thousands of miles away – had indirectly pushed the INR to record lows via the global surge in oil and the USD’s safe-haven rally.
Capital Outflows and RBI Intervention: Global investors pulled funds out of India in 2022, spooked by high inflation and geopolitical uncertainty. Foreign Portfolio Investors (FPIs) withdrew a net ₹1.22 lakh crore (about $15 billion) from Indian equities and ₹17,000 crore from debt markets during the year m.economictimes.com. The Russia-Ukraine war accentuated these FPI outflows, compounding the impact of the Fed’s tightening indianexpress.com. As FPIs sold rupee assets and converted to dollars, demand for USD shot up, putting further downward pressure on the INR indianexpress.com. The Reserve Bank of India (RBI) actively intervened to curb “disorderly” moves, drawing down forex reserves to cushion the rupee’s fall. In 2022 the RBI was a net seller of dollars (over $54 billion net sold from January to October) indianexpress.com. India’s forex reserves, which stood near $633 billion in January, fell by around $70 billion over the year indianexpress.com indianexp
Trade Balance Woes and Costly Commodities: India’s current account deficit (CAD) widened in 2022 as import costs ballooned. Being a large oil importer, India was hit hard by the war-driven spike in crude prices. The country’s trade deficit and CAD climbed to multi-year highs in mid-2022, putting additional pressure on the rupee m.economictimes.com. For instance, India’s CAD for FY 2022-23 rose to about 2% of GDP, up from 1.2% the previous year meetings.imf.org. The RBI noted that “a large part of the rise in inflation [in 2022] is primarily attributed to supply shocks linked to the war” indianexpress.com – highlighting how expensive oil and commodity imports strained India’s external accounts. The rupee’s fall itself fed into this cycle, as a weaker INR made imports (priced in dollars) even costlier, further aggravating the trade deficit m.economictimes.com. Policymakers grew concerned that a falling rupee and widening current account deficit (CAD) could form a vicious loop m.economictimes.com. To contain inflation, the RBI joined other central banks in raising interest rates – it hiked the repo rate by 225 bps between April and December 2022 (from 4.0% to 6.25%) to counter soaring prices reuters.com. Higher Indian interest rates helped a bit to stem outflows, but with U.S. rates rising even faster, the interest-rate gap still favored the dollar. In sum, through 2022 the Ukraine war’s indirect impacts – from oil at record highs to investors dumping emerging market assets – converged to make the rupee slump sharply against the USD m.economictimes.com m.
India’s Russian Oil Lifeline: One notable development in 2022 was India’s strategic pivot to discounted Russian oil to mitigate the blow of expensive energy. After Western sanctions cut off many buyers, Russia began offering steep discounts on its Urals crude. India seized the opportunity: traditionally, Russia supplied under 2% of India’s oil, but by mid-2022 Indian refiners ramped up purchases significantly. In the 2022-23 fiscal year, India’s crude oil imports from Russia jumped nearly 13-fold – from under $2.5 billion the previous year to over $31 billion thediplomat.com. Russia went from a minor supplier to India’s second-largest source of crude, accounting for about 19% of India’s oil imports in that year thediplomat.com. On average, Indian buyers obtained Russian Urals oil at a ~9% discount per barrel compared to prices from other suppliers (like Iraq) thediplomat.com. By April 2023, this discount had deepened to around 14%, spurring even more purchases thediplomat.com. These cheap oil imports “could not have come at a better time for India”, helping the government tackle macroeconomic pressures from surging global oil prices thediplomat.com. By easing India’s import bill, discounted Russian crude provided a cushion to the current account and helped cool inflation slightly from what it might have been. In effect, India’s oil trade with Russia became a war-induced safety valve – containment of the import bill and energy security amid global turmoil thediplomat.com. However, it also created new challenges, as discussed next.
Rupee Finds Stability: In 2023, the rupee’s freefall abated, even though the war in Ukraine dragged on. Global commodity prices moderated somewhat after the initial 2022 spikes – oil, for example, retreated from the extreme highs as markets adjusted and fears of severe shortages eased. By 2023, central bank actions worldwide had started reining in inflation, and the U.S. Federal Reserve, while still hiking rates, began slowing the pace. The net result was a period of consolidation for USD/INR. After the rupee’s 11% drop in 2022, 2023 saw the rupee relatively flat – it was down only about 0.8% over the year financialexpress.com. Through much of 2023, the exchange rate moved in a narrower band (roughly ₹81–83 per USD), indicating a more stable INR. Several factors contributed to this resilience:
Cooling Inflation and Improved Trade Balance: By late 2022 and into 2023, global crude oil prices had fallen from their peak, easing India’s import costs. Domestic inflation in India came off its highs (falling into the RBI’s 5-6% range, from ~7%+ earlier), reducing pressure on the currency. India’s current account deficit also improved markedly – shrinking from 2% of GDP in 2022-23 to just 0.7% of GDP in 2023-24, thanks to lower commodity prices and booming service exports meetings.imf.org. Robust exports of services (IT, business services) and record remittances from the Indian diaspora brought in substantial foreign exchange, offsetting some of the merchandise trade deficit financialexpress.com fin
Return of Capital Inflows: After heavy outflows in 2022, foreign investors began returning to Indian markets in 2023 as global risk sentiment gradually improved. India’s economy was among the fastest-growing major economies, and its corporate earnings remained strong, attracting portfolio investments. By mid-2023, foreign portfolio flows had turned positive, and India also continued to receive solid Foreign Direct Investment (FDI) inflows financialexpress.com. These capital inflows, coupled with the smaller current account gap, helped the balance of payments swing back into surplus, allowing the RBI to rebuild reserves that were spent defending the rupee earlier. Indeed, the RBI’s forex reserves rose from around $525 billion in October 2022 to about $600 billion by mid-2023 as pressures eased. This reserve buffer in turn bolstered confidence in the rupee.
RBI Policy and Market Confidence: The RBI had raised the repo rate to 6.50% by early 2023 and then paused further hikes, as inflation began reverting toward its comfort zone. While the U.S. Fed’s policy rate eventually peaked around 5.25–5.5%, India’s rates staying at 6.5% helped maintain a modest interest rate differential. Crucially, markets perceived the RBI as committed to currency stability – the central bank had demonstrated in 2022 that it would step in decisively to prevent a freefall. This acted as a deterrent against speculative attacks on the rupee. By the second half of 2023, the rupee was trading close to its long-term trend level, according to the RBI’s own assessment m.economictimes.com. In other words, after the initial war-driven turbulence, the INR found an equilibrium supported by India’s strong economic fundamentals and prudent management.
Ongoing War Impacts and Adjustments: While 2023 was calmer for the rupee, the Ukraine war continued to cast a shadow over global markets. Periodic spikes in oil and gas prices occurred whenever the conflict escalated or when new sanctions were announced. For instance, uncertainty around Russian energy supplies persisted – though Europe had largely weaned off Russian gas by 2023, any flare-up in the war that threatened Black Sea oil exports or a harsher sanctions regime could still jolt prices. India navigated this environment by further diversifying its oil imports and securing favorable terms from Russia and other suppliers. By mid-2023, Russia had become India’s largest single supplier of crude, at times accounting for 30–35% of monthly import volume thediplomat.com. The hefty discounts on Russian oil remained in place (often $5–10 per barrel below benchmark prices), which helped India contain its import bill even as global prices seesawed. This contributed to India’s lower import inflation and smaller current account deficit, indirectly shoring up the rupee’s value. In essence, the energy trade realignment initiated by the war became somewhat institutionalized by 2023 – Indian refiners and Russian sellers developed logistics and payment mechanisms to keep oil flowing, insulating India from some external price shocks.
At the same time, the West’s financial sanctions on Russia had wider effects on international finance that India had to navigate. Russian banks were cut off from SWIFT, complicating payments. In response, India and Russia attempted to promote local currency settlement (rupee–ruble trade). Through 2022–23, India set up special rupee accounts for trade with sanctioned countries. However, an imbalanced trade greatly limited this mechanism – India was importing far more from Russia than it exported. By late 2022, India’s imports from Russia were nearly 16 times its exports to Russia moneycontrol.com. This meant Russian entities accumulating large rupee balances with limited ways to spend them, making Russian banks reluctant to accept payment entirely in INR. As a Bloomberg report noted, “India’s love for discounted Russian oil is widening its trade deficit with Moscow and the casualty is their much-touted rupee trade plan.” moneycontrol.com No significant rupee payment for oil was ultimately executed in 2023 because Russian suppliers didn’t want excess rupees that they couldn’t readily use moneycontrol.com. The slow progress on rupee trade led to ongoing reliance on hard currencies (like the dollar or dirham) for India’s Russian oil payments, meaning India still needed substantial USD outflows for these imports. By the end of 2023, Russia had amassed tens of billions in Indian rupee assets, some of which were gradually used to buy Indian goods (like pharmaceuticals, food, and spare parts) reuters.com. Both governments renewed talks on how to establish a direct rupee-ruble exchange rate mechanism to bypass the dollar reuters.com, but a workable long-term solution was still pending. For the rupee, this meant that India’s record trade deficit with Russia – $57 billion in FY2023-24 knnindia.co.in – continued to exert pressure on the currency. The Indian government remained keen on internationalizing the rupee to reduce dependence on the dollar in such situations moneycontrol.com, a strategy directly accelerated by the Ukraine war’s fallout.
FII and Central Bank Dynamics: In 2023, foreign investor behavior and central bank policies continued to be influenced by the war’s indirect effects. Early in the year, as war-related inflation remained high, the Fed carried out additional rate hikes (totaling ~100 bps in H1 2023) financialexpress.com. This kept U.S. yields elevated and at times led to bouts of dollar strength that nudged the rupee weaker. However, unlike 2022, India’s markets proved more resilient – each time the rupee neared the ₹83 per USD level, it found support. The RBI’s interventions were less frequent in 2023, as natural supply-demand balance improved, but the central bank did step in on occasion to prevent excess volatility (such as during the U.S. banking turmoil in March 2023 and around geopolitical flare-ups). Notably, by late 2023, India’s FX reserves had climbed back toward $600 billion, giving the RBI confidence to manage any sudden capital flight. In fact, with the external position comfortable, the RBI shifted to rebuilding reserves it had spent – a reversal from the depletion seen in 2022 m.economictimes.com. On the investor front, India’s strong growth (over 6%) and earnings made it a standout even as global growth slowed, so FPIs who fled in 2022 started viewing India as a relatively safe investment destination by 2023. This confidence helped the rupee remain range-bound. By year’s end 2023, the rupee was around ₹82.7 per USD, only slightly weaker than it began the year – a remarkable turnaround from the extreme volatility triggered by the war initially financialexpress.com. In summary, 2023 was a year of consolidation for USD/INR, as India adapted to the war-altered global landscape: the rupee stabilized, aided by cheaper Russian oil, robust domestic growth, improving external balances, and proactive monetary management.
Persistent Headwinds: Entering 2024, the Ukraine conflict remained unresolved, and its undercurrents were still influencing the USD–INR dynamics. Global oil prices in the first half of 2024 were relatively moderate compared to 2022, but still subject to volatility due to factors like OPEC+ production cuts (to which Russia is party) and war-related supply risks. India continued its high-volume oil imports from Russia, but one noteworthy trend was that the Russian oil discount began fading by late 2023 and early 2024. As global markets adjusted to sanctions (with mechanisms like the G7’s $60 price cap on Russian crude exports), Urals crude prices inched closer to international benchmarks. By mid-2024, India was paying more for Russian oil than it did a year earlier – reducing the savings it enjoyed previously. In fact, India’s import bill started rising again: In May 2024, India’s goods trade deficit hit a 7-month high of $23.8 billion, and 71% of the widening (month-on-month) was due to a surge in the net oil import bill, largely because Russian oil had become pricier moneycontrol.com moneyco
Rupee Under Pressure (Again): Another factor in 2024 was the U.S. dollar’s renewed strength. In mid-to-late 2023, robust U.S. economic data and the Federal Reserve’s indication that rates might stay higher for longer led to a rise in U.S. Treasury yields. By late 2023, the 10-year U.S. yield hit its highest in 16 years, attracting investors to dollar assets. The USD gained ground broadly, and emerging market currencies saw some depreciation. The Indian rupee was no exception. After holding mostly stable in early 2023, the rupee drifted weaker in the latter part of 2023 and into 2024. By mid-2024, it hovered in the ₹83–84 per USD range, occasionally testing record-weak levels. Over the calendar year 2024 (to date), the rupee depreciated roughly 2.8% against the dollar, reflecting a strengthening USD and global risk factors m.economictimes.com. Geopolitical tensions continued to play a role – not only the protracted Ukraine war but also events like the Middle East conflicts in late 2023 added to investors’ cautious mood, which tends to support the safe-haven dollar. Furthermore, with the Fed keeping rates high (and not ruling out further tightening if inflation persisted) while the RBI stayed on hold, the interest rate differential moved in favor of the U.S. This encouraged some capital outflows from India or deterred new inflows, contributing to rupee softness.
Despite these headwinds, the rupee’s decline in 2024 was gradual and controlled, nothing like the sharp fall of 2022. The RBI continued to intervene as needed to prevent any rapid slide. In fact, in the second half of 2024, the RBI was reported to have intervened periodically – selling dollars when the rupee approached the ₹83.5–₹84 mark – to smooth volatility. This defense of the rupee did have a cost: India’s forex reserves dipped in late 2024 as the central bank supplied dollars to the market m.economictimes.com. But the policy stance was clearly to avoid excessive depreciation that could threaten domestic inflation. By end-2024, foreign reserves were still healthy (in the ~$580–590 billion range), providing ample firepower. The RBI’s more “judicious” use of reserves was noted – it would intervene to curb volatility but not try to peg the rupee to a specific level in the face of fundamental pressures reuters.com reuters.
It’s worth noting that foreign institutional investment flows in 2024 were mixed. After net inflows earlier, the trend reversed when U.S. yields spiked. Indian equity markets saw bouts of FPI selling in late 2023 and early 2024 – a response to global factors like high rates and recession worries. For example, in September–October 2024, FPIs pulled money from Indian stocks amid a global selloff, contributing to rupee weakness. However, those outflows were not as large as in 2022, and they partially reversed when sentiment improved. By Q4 2024, with expectations that the Fed was near the end of its hiking cycle, some stability returned. In sum, the war’s second-order effects continued into 2024, but the rupee managed a new equilibrium with the help of vigilant RBI intervention and the underlying strength of India’s economy. The currency remained near historically weak levels (around ₹83–84 per USD), yet major turmoil was averted.
Geopolitics and Alliances: The protracted conflict also subtly shifted global alliances in ways that affect currency markets. India throughout 2022–24 walked a diplomatic tightrope – on one hand, it maintained ties with Russia (for energy and defense needs), and on the other hand it stayed engaged with the U.S. and West (for investment and technology). This balancing act allowed India to benefit economically (cheap oil from Russia, Western investment from the U.S./Europe) but also meant it had to manage currency arrangements carefully. By 2024, about 90% of India-Russia trade was still conducted in other currencies (mostly USD) despite talk of local currency use moneycontrol.com reuters.com
Although neither India nor the U.S. is directly involved in the Ukraine war, the conflict’s ripple effects have clearly influenced the USD–INR exchange rate from 2022 through 2024. In 2022, the war acted as a catalyst for high global inflation, commodity price spikes, and financial turmoil, which pummeled the rupee to record lows against the dollar m.economictimes.com m.
Overall, the Ukraine war’s indirect impact has been to weaken the rupee relative to pre-war levels – the exchange rate moved from roughly ₹74 per USD before the war to around ₹82–84 by 2024. This depreciation was driven largely by external factors (oil and commodity outflows, a stronger dollar, risk-off capital moves) rather than India-specific weakness. In fact, the rupee might have fallen even further in 2022 had India not adapted by buying Russian oil at cheaper rates thediplomat.com and had the RBI not deployed its reserves m.economictimes.com. The war highlighted India’s vulnerabilities – notably its heavy reliance on imported energy – but also showcased the economy’s resilience in the face of global crises. By securing alternative energy supplies and maintaining investor confidence, India managed to contain the damage to its currency.
Going forward, the USD/INR will continue to be influenced by the war’s trajectory. A prolongation of hostilities could keep commodity prices elevated and global investors jittery, which would maintain some pressure on the rupee. Conversely, any de-escalation or diplomatic resolution that eases oil supply concerns could strengthen the rupee by improving India’s trade balance and reducing inflation. Additionally, the structural shifts set in motion – such as India’s push for trade in rupees and diversified supply chains – may gradually reduce the sensitivity of the INR to such external shocks. For now, the experience from 2022–2024 underscores that in an interconnected world, a geopolitical conflict can significantly sway currency exchange rates indirectly. The Ukraine war made the U.S. dollar king in moments of panic and tested emerging currencies like the INR, which had to weather imported inflation and capital flight. India’s policy response and its opportunistic oil diplomacy helped stabilize the rupee eventually, but the currency’s journey during this period is a case study in how global turmoil finds its way into local exchange rates m.economictimes.com indian
Sources: The analysis above draws on data and reports from credible outlets including the Reserve Bank of India, Reuters, The Economic Times, Indian Express, Bloomberg/Moneycontrol, and the IMF. Key insights on the rupee’s performance, capital flows, and trade come from these sources, as cited inline. Notably, RBI and government statements have explicitly linked the rupee’s 2022 decline to the Ukraine war’s impact on inflation and trade indianexpress.com, while trade data confirm the exponential rise in India’s imports of Russian oil and the resulting shifts in the current account thediplomat.com meetings