UAE emerges as India’s strategic shock absorber after a year of tariffs

India’s non-oil bilateral trade with the UAE surged 33.9% to USD 37.6 bn in 1H 2025 as the country turned to the MENA corridor as a hedge during a brutal year of tariffs, Press Trust of India reports. Total trade between India and the UAE reached USD 100 bn between 2024 and 2025.

The shape of things to come: India is no longer using the UAE trade corridor as a “growth market,” it is shaping up to become the country’s primary strategic buffer. Non-oil trade is on track to cross USD 100 bn by 2030, supported by dutyfree access on 90% of product lines.

There’s more: Three notable freetrade agreements with Oman, New Zealand, and the UK will enter into force next year and are expected to widen energy, logistics, and services links. Indian goods and services exports touched USD 824.9 bn in FY 2025, with officials projecting further gains into 2026.

A wrench in the works? While the Indian government may have skirted the 50% US duty enacted this year, the incoming Carbon Border Adjustment Mechanism (CBAM) from the EU, set to arrive on 1 January 2026, will be a blow to carbon-intensive Indian exports like steel and aluminum. Indian exporters face a potential 20-35% tax burden on shipments to Europe, with steel exports to the EU already down 24% just on reporting requirements.

Market watch

The INR inching toward the 90 / USD 1 mark could represent a shift in appetite for GCC trade. The currency drifted to 89.95 in Monday morning trade, Reuters reports, driven by routine client flows through private banks rather than a sudden risk-off panic.

The INR slumped to 24.55 against the AED in early December, depreciating nearly 5.3% over 2025, Gulf News reported earlier this month. The move sparked a surge in remittances that tightened liquidity, with UAE-based investors also treating it as a 6-7% “discount” on premium Indian property markets like Mumbai and Bengaluru.

It is a structural pivot for the MENA-India trade corridor, as a weaker INR makes Indian agro-exports cheaper for Gulf food security, but it hikes the cost for Indian manufacturers importing USD-pegged Gulf petrochemicals.

Our take: The INR breaching the 90-per-USD mark is not a “seasonal blip”— it could be the first milestone in a structural 2026 slide. For the GCC, this marks a shift from stability to opportunity for the India-MENA corridor. The cost of Indian-sourced textiles, food staples, and engineering goods could effectively drop by 3Q 2026, potentially offsetting the 14% rise in global tariff averages. If the INR indeed enters a “crawl-like” depreciation through 2026, UAE crude exporters may demand higher premiums or shorter settlement cycles to avoid holding a depreciating currency.