Yuan for oil payments? UAE seeks US safety net amid Iran war – report

The United Arab Emirates has asked the United States for a financial safety net in case the Iran war plunges the region into a deeper crisis, the Wall Street Journal reported on Monday, citing US officials. The talks highlighted the UAE’s concern that the war could inflict major damage on its economy and its position as a global financial hub, depleting its foreign reserves and scaring away investors who once saw it as a stable and secure place for their money. According to the report, the UAE emphasised that it has so far avoided the worst economic effects of the conflict but might still need a financial lifeline. UAE central bank governor Khaled Mohamed Balama raised the idea of a currency-swap line with Treasury Secretary Scott Bessent and Treasury and Federal Reserve officials in meetings in Washington last week, US officials told WSJ. Emirati officials told US officials that if the UAE runs short of dollars, it may be forced to use Chinese yuan or other countries’ currencies for oil sales and other transactions, some of the officials said. The Gulf country also said that US President Donald Trump’s decision to attack Iran has entangled the region in a destructive conflict whose effects may not be over, some of the officials said. Some officials aware of the matter told the publication that swap lines are typically administered by the US Federal Reserve, but its 12-member policy committee, the Federal Open Market Committee (FOMC), is unlikely to approve one for the UAE. The central bank usually reserves such facilities for easing severe funding-market stress that could spill back into the US economy. The Fed has standing arrangements with central banks in the United Kingdom, Canada, Japan, Switzerland and the European Union. During periods of acute stress — most recently in the 2020 COVID-19 pandemic — it extended swap lines to nine other central banks, including Mexico, South Korea and Brazil. The UAE has relatively weaker financial ties with US markets compared to traditional swap recipients. With the war against Israel escalating, Iran has targeted the UAE and other Gulf nations with over 2,800 drones and missiles, according to the UAE Ministry of Defence, though most were intercepted. The Emirati dirham remains pegged to the US dollar and backed by $270 billion in foreign-currency reserves, but analysts told WSJ that the conflict has increased risks of capital flight, market volatility and economic disruption. S&P Global said the UAE’s strong fiscal and external buffers would help absorb shocks from the regional conflict, but warned that prolonged disruption to oil exports and infrastructure damage remain key risks. The war has also pushed the UAE closer to the US and away from earlier efforts to build diplomatic and financial ties with Iran as a buffer against regional instability. US Treasury officials recently invited Gulf countries on the sidelines of IMF–World Bank meetings in Washington to discuss infrastructure and recovery needs, signalling support if assistance is required. Finance ministers and central bankers meeting at the IMF and World Bank sessions cautioned that a quick regional recovery is unlikely. Gulf states have also raised billions in debt in recent weeks to bolster liquidity amid what the International Energy Agency has described as the “most severe oil-supply shock in history.” Abu Dhabi raised about $4 billion through private placements arranged by banks including Goldman Sachs, while Bahrain has established a $5 billion swap line with the UAE to support financial stability. Saudi Finance Minister Mohammed Al-Jadaan said on a panel that restoring normal oil logistics after the conflict could take until the end of June, warning against expectations of a quick recovery.