India looks to settle trade with Gulf countries in local currencies amid global uncertainties
Officials said enabling trade in domestic currencies would help avoid routing transactions through the US dollar, thereby lowering conversion costs and limiting the impact of currency volatility
By Priyansh Verma & Adrija Chatterjee
March 18, 2026 / 15:28 IST
India looks to settle trade with Gulf countries in local currencies amid global uncertainties.
India is exploring a framework to settle trade with Gulf countries in local currencies to protect its import bill for oil and other goods from external shocks, including ongoing geopolitical tensions, government officials told Moneycontrol.
The move is aimed at reducing exposure to global uncertainties that can disrupt trade flows and inflate import costs, particularly for crude oil and petroleum products, which India imports heavily from the region.
“We should ensure that India is protected from external uncertainties whenever they arise, such as the ongoing conflict,” a government official said.
The Gulf Cooperation Council (GCC) countries include Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain.
Oil prices have been volatile in recent months due to ongoing geopolitical tensions, especially in West Asia. Brent crude has swung between roughly $70 and $110 per barrel, posing risks to global supply.
As India depends on imports for around 85 percent of its crude oil needs, such price swings can raise the import bill, widen the trade deficit, and push up inflation.
In this context, trading in local currencies could help, particularly as about 28 percent of India’s total crude oil imports in FY25 came from the Gulf Cooperation Council (GCC) countries, with Saudi Arabia and the UAE supplying the bulk of that volume.
Officials said enabling trade in domestic currencies would help avoid routing transactions through the US dollar, thereby lowering conversion costs and limiting the impact of currency volatility.
While there is no immediate concern around dollar availability with regard to the region, the push reflects a broader strategy to promote the use of the rupee in international transactions, a second official said.
The initiative also comes against the backdrop of a weakening rupee, which has made imports more expensive.
“We can’t estimate the trajectory of the rupee, and imports are getting costly. That’s why it’s important to have arrangements where trade happens in local currencies and not in dollars,” the first official said.
Discussions on such a framework are expected to take place alongside India’s free trade agreement (FTA) negotiations with Gulf Cooperation Council (GCC) countries, the terms of reference for which were signed in February, the second official added.
To be sure, the first round of negotiations for this trade deal is expected only in the second half of 2026, given the ongoing tensions in West Asia, Moneycontrol reported earlier.
India is likely to follow the template used with the United Arab Emirates, where local currency trade was enabled through separate central bank-led arrangements negotiated alongside the trade pact.
After India and the UAE signed the Comprehensive Economic Partnership Agreement in February 2022, the two countries set up a Local Currency Settlement (LCS) framework through their central banks in July 2023.
The system lets trade be invoiced and paid directly in Indian rupees and UAE dirhams, using designated bank accounts.
This reduces transaction costs and limits exchange rate risk.
https://www.moneycontrol.com/news/b...ncies-amid-global-uncertainties-13864137.html
www.independent.co.uk
