How Iran-US War Is Affecting the Indian Rupee and UAE Dirham Exchange Rate

Two Currencies — Two Completely Different Stories

The Iranian-US war that began on February 28, 2026 has produced one of the greatest currency splits in recent Indian financial history. The Rupee has plummeted — achieving record-breaking declines, draining India’s foreign exchange reserves, and prompting the Reserve Bank of India to intervene to prevent freefall. In contrast, the UAE Dirham has barely budged. It has remained in the same position today as it did prior to the war, as it was ten years ago, and as it will probably be ten years from now.

Understanding why these two currencies have reacted so differently — and what this means for Indian NRIs, investors, and remitters — is the purpose of this article.

The Rupee in Freefall — A Timeline of the Damage

Prior to February 28, 2026, the Indian Rupee was experiencing some downward pressure — trading at approximately ₹89.96 to the US Dollar at the beginning of the year. Once the war began, things quickly escalated.

In less than thirty days, the Rupee decreased by approximately 5.7% against the Dollar — thereby decreasing by over 10% in FY2025-26 — the largest annual decrease since the European Union debt crisis of 2011-12, when the Rupee decreased by approximately 14%.

Why the Rupee Is Falling — The Four Drivers

The Rupee’s downfall is not arbitrary. There are four identifiable drivers causing it to fall — and all were either triggered or exacerbated by the Iran-US conflict.

The RBI’s Emergency Response — And Its Limits

The Reserve Bank of India has not been inactive — it has taken various actions to stabilise India’s currency. However, the magnitude of pressure has put serious limitations on what RBI can do. RBI has been actively intervening to reduce volatility — but has already spent approximately $100 billion from its foreign exchange reserves — providing limited capacity for future support. Earlier stabilisation measures led to reductions of over $30 billion from forex reserves within just three weeks of March — further reducing RBI’s capacity for additional direct action.

On March 27, RBI made one of its most forceful moves in over a decade — imposing restrictions on banks’ foreign exchange exposures, capping daily onshore open positions at $100 million per day commencing April 10. This compels lenders to withdraw significant portions of their large net long positions and limits their ability to take on unbalanced bets against the Rupee.

How Low Could the Rupee Go?

That is a question every Indian investor wants answered — unfortunately, analysts do not offer reassuring responses. Anindya Banerjee of Kotak Securities believes the Rupee could fall to ₹96 to ₹97 per dollar in extreme scenarios involving Iran war-related disruptions persisting until mid-April. “A move towards ₹100 is not our base case at this juncture,” he said. “Once tensions abate and supply normalises, we would expect a sharp correction in energy prices, which should lead to a relief rally in the Rupee.”

Market experts emphasise that FII outflows and expanding trade deficits represent significant pressures — with potential slides below ₹98 possible should energy supply disruptions via the Strait of Hormuz continue. Consensus opinion is that ₹96 to ₹97 is the reasonable near-term floor if the conflict continues — with ₹100 considered a tail-risk scenario that analysts believe is unlikely but increasingly feasible given current events.

The UAE Dirham — The Complete Opposite Story

While the Rupee has crashed, the UAE Dirham has changed absolutely nothing — literally zero movement in any direction whatsoever. It is not that markets have not tried to move it — but rather that they are structurally unable to do so. The UAE Dirham has been pegged to the US Dollar at an exact rate of approximately 1 USD = 3.6725 AED since 1997. The Central Bank of the UAE automatically intervenes in the forex market at USD/AED 3.672 when buying US Dollars and USD/AED 3.673 when selling US Dollars — thus neutralising any net flow of funds that might affect exchange rate parity.

Therefore, regardless of how many missiles are fired upon Dubai, regardless of how disrupted shipping through the Strait of Hormuz becomes, and regardless of how massive global capital flight to safe havens becomes — the Dirham stays at 3.6725 per USD. This is not simply a happy coincidence. Oil exports have historically formed the backbone of the UAE economy and are traded internationally in US Dollars. Fixing the Dirham to the Dollar eliminates currency risk associated with oil revenues and simplifies cross-border trade. According to World Bank data, UAE’s foreign exchange reserves stood at $232 billion in 2024 — providing sufficient liquidity for the Central Bank to maintain the peg indefinitely.

What This Means for AED-to-INR Remittances

Here is the practical implication that matters most for Indian NRIs earning in Dirhams and sending money home to India. Because the Dirham is pegged to the Dollar — as the Rupee falls against the Dollar, it automatically falls against the Dirham by an identical amount. This means every Indian NRI earning in AED is now receiving significantly more Rupees per Dirham than they were prior to the onset of the conflict.

Those with larger earnings or investors sending larger amounts will experience similar gains proportionately. Although there exists very little public discussion regarding this point amid ongoing media coverage surrounding the conflict — the war that is disrupting India’s economy is simultaneously increasing the value of every Dirham earned by Indian NRIs.

The Double-Edged Sword — What NRIs Must Watch

The favourable exchange rate experienced by NRIs is accompanied by three important cautions which must be fully understood before making any decisions.

What Indian NRIs Should Actually Do Right Now

Based on everything above, here is the practical guidance for each category of Indian NRI in Dubai right now.