The Indian rupee weakened to around 95.1 per dollar, retreating after a brief stabilization as renewed Middle East tensions lifted global oil prices and strengthened the US dollar.
Brent crude climbed above $76 per barrel after rising 2.6%, extending the previous session's 3% surge, raising concerns over India's import bill and inflation outlook.
Market sentiment deteriorated after the US launched fresh strikes on Iran and revoked a license permitting Iranian oil sales following attacks on three tankers in the Strait of Hormuz.
Meanwhile, the yield on the 10-year US Treasury note rose to 4.565%, the highest in nearly a month, as higher energy prices fueled inflation concerns, while the US Dollar Index edged above 101, adding pressure on emerging-market currencies.
Earlier, the currency had posted its strongest daily gain in over three weeks after dollar sales in the non-deliverable forwards market, though it had still fallen about 1% over the previous week.