Indian rupee risks slide toward 27 per dirham if oil hits $120

The Indian rupee’s fall to record lows near 93.9 against the dollar or 25.7 per dirham is raising fresh concerns in currency markets, with analysts warning that the currency could weaken toward 97–100 or 26.5–27 against the UAE currency if crude oil climbs to $120 a barrel amid escalating tensions in the Middle East — a scenario that would sharply widen India’s import bill and current account deficit while reshaping remittance behaviour among Gulf-based expatriates.

The rupee weakened after renewed escalation in the Middle East pushed crude prices above $107 a barrel, reinforcing concerns over India’s energy vulnerability. Brent crude has hovered near $110 in recent sessions, amplifying pressure on emerging-market currencies, particularly oil importers such as India, which depends on overseas supplies for nearly 88–89 per cent of its energy needs.

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Every $10 increase in oil prices adds billions of dollars to India’s import costs and typically widens the current account deficit by about 0.3–0.4 percentage points of GDP. Analysts estimate that if crude remains above $100 for an extended period, the deficit could approach 3 per cent of GDP — a level that historically weakens investor confidence in the rupee.

The latest depreciation also reflects sustained foreign capital outflows. Data show overseas investors pulled roughly $640 million from Indian equities in a single session late last week, while cumulative withdrawals across asset classes exceeded about $1.6 billion during a recent trading day earlier this month. Combined with a stronger dollar and global risk aversion, these outflows have intensified demand for the greenback.

Currency markets were further unsettled after Iran signalled possible restrictions on shipping access through the Strait of Hormuz, a strategic artery for nearly a fifth of global oil trade. Even the perception of disruption in this corridor tends to trigger immediate pressure on oil-importing economies such as India.

Despite the sharp decline, the Reserve Bank of India has avoided defending any specific exchange-rate level. Instead, it has intervened selectively to smooth volatility through spot and forward market operations, with estimates suggesting more than $15 billion deployed this month. Analysts interpret this approach as a calibrated strategy aimed at ensuring orderly adjustment rather than resisting structural weakening.

Short-term forecasts suggest the rupee may remain in the 93–95 range if crude prices stay elevated. However, a prolonged conflict-driven energy shock could push the currency toward 97–100, particularly if oil rises above $120 per barrel or portfolio outflows accelerate further.

Currency analysts said the implications extend beyond financial markets. A weaker rupee increases the cost of imported fuel, fertilisers and electronics, potentially lifting inflation and delaying interest-rate easing. Companies with unhedged foreign debt also face higher repayment burdens, while sectors dependent on imported raw materials may see margins compress.

For the UAE — India’s largest remittance corridor — the rupee’s slide is already influencing money-transfer behaviour among expatriates. Exchange houses in Dubai report heightened interest in transfers as the dirham strengthens against the rupee, with the conversion rate moving close to Rs25.7 per dirham.

However, currency strategists and remittance dealers say many non-resident Indians are adopting a wait-and-watch approach rather than rushing transfers immediately. With geopolitical risks still elevated and oil markets volatile, expectations are building that the rupee could weaken further in the coming weeks, potentially improving remittance value for Gulf-based workers.

This trend reflects a familiar pattern during episodes of rupee depreciation: transfers typically accelerate only after exchange rates stabilise near perceived short-term peaks. If the currency moves closer to 95 against the dollar, remittance flows from the Gulf could surge sharply.

Over the medium term, the rupee’s direction will depend on three key variables: the duration of the Middle East conflict, the trajectory of global oil prices and the scale of foreign portfolio flows into emerging markets. While India’s strong growth outlook and robust foreign exchange reserves provide a cushion, the currency remains highly sensitive to energy shocks.

At present, markets expect continued volatility rather than a rapid recovery — making the rupee one of the most closely watched indicators of how global geopolitics is reshaping Asia’s economic outlook.

Written by

Issac John Staff Writer

Issac John is Managing Editor at Khaleej Times and has over 45 years of experience in top-tier newspapers across UAE. A seasoned business writer and economic analyst, he brings unmatched insight into the geopolitics and geoeconomics shaping the Gulf and India.