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Rupee eyes 26 per dirham as oil shock strains RBI firepower
The latest bout of weakness has been triggered by a sharp surge in crude prices — now above $110 per barrel — following attacks on energy infrastructure across the Gulf
- PUBLISHED: Thu 19 Mar 2026, 7:36 PM
The Indian rupee is coming under renewed and intensifying pressure as surging oil prices, escalating geopolitical tensions in the Middle East, and persistent capital outflows combine to push the currency toward fresh record lows — with Goldman Sachs warning it could weaken to 95 against the US dollar in the coming months, equivalent to roughly Rs25.8–26 per UAE dirham.
The rupee slipped to a record low of 92.63 per dollar this week and continues to hover near historic lows despite intermittent recoveries driven by central bank intervention. Offshore markets are already signalling further weakness, with non-deliverable forwards indicating levels beyond 93 as oil prices spike and risk sentiment deteriorates.
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The latest bout of weakness has been triggered by a sharp surge in crude prices — now above $110 per barrel — following attacks on energy infrastructure across the Gulf. For an import-dependent economy like India, which sources over 80 per cent of its crude requirements from overseas, the impact is immediate and severe: a ballooning import bill, widening current account deficit, and rising demand for dollars.
Goldman Sachs has turned increasingly cautious, projecting the rupee could slide to 95 per dollar within a year as the oil shock reverberates through India’s external balances. The bank has also trimmed India’s growth forecast to around 6.4–6.5 per cent while raising its inflation outlook, warning that elevated energy prices could weaken domestic demand and corporate profitability.
The balance of risks is clearly tilted to the downside,” Goldman analysts said, describing the current crisis as a “material terms-of-trade shock” for India due to its deep economic linkages with the Middle East, spanning energy imports, exports, and remittances.
The Reserve Bank of India has stepped in aggressively to manage volatility, deploying billions of dollars from its foreign exchange reserves in recent weeks. Market estimates suggest the RBI sold between $9 billion and $15 billion in a single week earlier this month — one of the largest interventions in recent years — using spot, forward, and offshore markets to stabilise the currency.
However, policymakers appear to be managing the pace of depreciation rather than defending a specific level. Analysts say the RBI is allowing the rupee to act as a “shock absorber” for external pressures, even as it tries to prevent disorderly movements. With reserves now around $563 billion and import cover gradually tightening, the central bank’s room for prolonged defence is increasingly being tested.
“The RBI cannot fight fundamentals indefinitely,” said Indranil Pan, chief economist at Yes Bank, noting that sustained intervention could erode reserve buffers while only delaying the inevitable adjustment.
The currency’s slide is being compounded by foreign portfolio outflows, with overseas investors pulling billions of dollars from Indian equities amid global risk aversion. At the same time, a stronger US dollar and tighter global financial conditions are adding to the pressure on emerging market currencies.
For the UAE, the rupee’s weakness has immediate implications. The dirham — pegged to the dollar — has strengthened significantly, with exchange rates now hovering around Dh1 = Rs25.25–25.35, and potentially moving closer to Rs26 per dirham if Goldman’s 95/$ scenario materialises.
This has triggered a surge in remittance flows from the UAE’s large Indian diaspora, which sends more than $20 billion annually back home. Exchange houses across Dubai and Abu Dhabi report rising transaction volumes as expatriates seek to maximise value amid favourable currency movements.
“Whenever the rupee weakens sharply, remittances typically spike as customers lock in better rates,” said a senior executive at a leading UAE exchange house.
However, the benefits are not entirely straightforward. A weaker rupee also means higher import costs in India — particularly for fuel, fertilisers, and food — which could feed into inflation and erode the real purchasing power of remitted funds over time. Economists already expect inflationary pressures to build in coming months as higher energy prices pass through to the broader economy.
Despite the current pressures, analysts maintain that India’s macroeconomic fundamentals — including resilient domestic demand and a relatively strong banking system — provide some buffer against extreme currency stress. But much will depend on how long oil prices remain elevated and whether geopolitical tensions ease.
For now, analyst say, the rupee remains caught in a perfect storm of external shocks, capital outflows, and structural vulnerabilities. With oil prices driving the narrative and global markets on edge, the path toward 95 per dollar is no longer a distant risk — but an increasingly plausible baseline scenario.
