UAE seeks U.S. dollar swap line amid conflict

In Short:
– UAE discusses dollar currency-swap line with the US due to economic strains from conflict with Iran.
– Central Bank Governor proposes swap to U.S. officials, aiming to boost economic resilience amid challenges.

The United Arab Emirates (UAE) is in discussions with the United States regarding a potential dollar currency-swap line amid economic strains from the ongoing conflict with Iran, as reported by The Wall Street Journal.UAE Central Bank Governor Khaled Mohamed Balama proposed this idea to U.S. Treasury Secretary Scott Bessent and Federal Reserve officials during meetings last week in Washington. U.S. officials regarded the proposal as precautionary and noted that Emirati representatives have managed to mitigate the worst economic impacts of the conflict to date.

Dollar talks ongoing

The conflict began in late February, following U.S. and Israeli military actions against Iran, disrupting vital Gulf energy infrastructure. Shipping traffic through the Strait of Hormuz, which typically carries about 20 percent of global oil supply, dramatically fell after Iran declared it closed.

This closure has significantly impacted the dollar revenue stream for the UAE and other Gulf nations. If access to dollars becomes limited, Emirati officials have indicated they may use the Chinese yuan for oil transactions, which could threaten the petrodollar system.

The Federal Reserve traditionally limits currency swap lines to a select group of financial allies, so a line for the UAE would represent a notable change. The Treasury has established precedents for currency swaps, including a $20 billion arrangement with Argentina’s central bank last year.

 

Abu Dhabi is taking proactive measures to strengthen its economy, having raised nearly $10 billion through private bond placements in April. The UAE and Bahrain also formalized a AED 20 billion (about $5.4 billion) currency swap agreement earlier this month.