Worried about depleting finances and foreign reserves, the UAE asks the US for money.

Iran War Deals Blow to Gulf Economy; UAE Seeks Dollar Liquidity Safeguard and Pressures Washington by Turning to Other Currencies On April 19, according to the Wall Street Journal, the UAE has started preliminary consultations with Washington regarding access to US financial support. Knowledgeable US officials revealed that the UAE Central Bank Governor Khaled Mohamed Balama met last week in Washington with Treasury Secretary Scott Bessent and Fed officials, proposing the idea of establishing a currency swap line to prevent the oil-rich nation from being dragged into a deeper economic crisis by the war. The core backdrop to these consultations: The Iran war has caused substantial damage to the UAE's oil and gas infrastructure and blocked its pathway for exporting oil via the Strait of Hormuz, cutting off a critical source of dollar income. UAE officials warn that if foreign exchange reserves continue to be depleted, the country may be forced to conduct oil transactions in other currencies—a statement seen as an implicit threat to the dollar's dominance. However, the report notes that the UAE has not yet made a formal application, categorizing the proposal as "preliminary and preventive" action. Currently, the UAE dirham is pegged to the dollar, with foreign exchange reserves totaling $270 billion; however, risks from capital outflows, stock market volatility, and supply chain disruptions triggered by the war have created multiple layers of pressure. In the meantime, Abu Dhabi earlier this month raised about $4 billion from investors through private placements, and Bahrain has established a $5 billion swap line with the UAE, showing that Gulf nations are adopting multiple measures to cope with liquidity pressure. War Impact: Oil and Gas Revenues Interrupted, Foreign Reserves Under Depletion Reports say that before the ceasefire agreement went into effect on April 17, Iran had fired over 2,800 drones and missiles at the UAE. Although most were intercepted, the war has caused significant damage to the UAE's oil and gas infrastructure and cut off its ability to transport oil via the Strait of Hormuz, depriving the nation of a vital source of dollar revenues. UAE officials emphasized to their US counterparts that it was the Trump administration's decision to launch an attack on Iran that has dragged the UAE into this destructive conflict, and the impact may not be over yet. The war has also prompted the UAE to align diplomatically with the United States, temporarily abandoning its previous strategy of circumventing regional conflict by building diplomatic and financial ties with Iran. S&P Global’s previous report indicated that the UAE's "strong financial, economic, external, and policy flexibility" would provide an effective buffer, but also warned that "the possibility of prolonged oil export disruption" and infrastructure damage "presents significant risks to forecasts." The International Energy Agency has characterized this supply shock as "the most severe oil supply shock in history." Swap Request: Fed Approval Uncertain, Treasury May Offer Alternative Currency swap lines are usually managed by the Federal Reserve, and could provide the UAE Central Bank with low-cost dollar financing to support its local currency or supplement foreign reserves. However, the report notes, according to insiders, that the likelihood of the Federal Open Market Committee (FOMC) approving such a measure appears low. The Fed generally reserves swap lines for alleviating severe financing market stress that might spill over to the US economy; its standing arrangements cover only the central banks of the UK, Canada, Japan, Switzerland, and the EU. During the COVID-19 crisis of 2020, the Fed temporarily extended swap lines to nine central banks, including Mexico, Korea, Brazil, but the UAE’s financial ties with US markets are much weaker than those traditional swap partners. The alternative offered by the Treasury may be more feasible. Reports state that last year the Treasury provided a $20 billion swap arrangement to Argentina via the Exchange Stabilization Fund, bypassing the need for approval from the Fed's committee. US Treasury officials last week also invited Gulf nations during the IMF and World Bank annual meetings to discuss infrastructure repair and economic reconstruction needs, and promised priority support when aid becomes necessary. Meanwhile, the UAE has played a significant card in negotiations. According to insiders, UAE officials explicitly told the US side that if reserves run dangerously low, the country may be compelled to conduct oil sales and other transactions in currencies other than the dollar. Analysts believe this statement touches the core sensitivities of the dollar system. The dollar’s dominant role in the global monetary system is partly built on oil transactions being almost universally priced in dollars. If oil-producing Gulf nations switch to alternative currencies, it will pose a structural challenge to the dollar’s status as a reserve currency. Multi-Pronged Approach: Gulf Countries Accelerate Financing for Self-Rescue While awaiting US response, the UAE and neighboring Gulf countries have already initiated multiple financing channels. According to sources, earlier this month, Abu Dhabi—the UAE capital—raised about $4 billion from investors via private deals arranged by banks such as Goldman Sachs, paying a certain premium to accelerate the process. Bahrain and the UAE Central Bank also established a $5 billion bilateral swap line this month to bolster financial stability for both. Nevertheless, Gulf nations’ finance ministers and central bank governors at the meeting generally held a cautious outlook on economic recovery. Saudi Finance Minister Mohammed Al-Jadaan said during a panel discussion at the IMF and World Bank annual meetings: "Just the rescheduling of oil tanker dispatches and return to normal operations may not be completed until the end of June. Anyone expecting a rapid recovery—even if the conflict ends completely—needs to recalculate." Risk Warning and Disclaimer Markets are risky, and investments require caution. 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