UAE asks US for a wartime financial lifeline

 The United Arab Emirates has opened talks with the U.S. about obtaining a financial backstop in case the Iran war plunges the oil-rich Persian Gulf state into a deeper crisis, U.S. officials said.

U.A.E. 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, the officials said. The Emiratis emphasized that they had so far avoided the worst economic effects of the conflict but might still need a financial lifeline, the officials said.

The talks highlighted the U.A.E.’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. The conflict has damaged Emirati oil-and-gas infrastructure and shut off their ability to sell oil using tankers transiting the Strait of Hormuz, depriving it of a key source of dollar revenues.

Emirati officials haven’t made a formal request for a swap line, which would give the U.A.E. central bank inexpensive access to dollars to support its currency or shore up its foreign reserves in case of a liquidity crisis. In talks with the U.S. in recent days, they have portrayed the proposal as preliminary and precautionary, the U.S. officials said.

But they have also argued that it was President Trump’s decision to attack Iran that entangled their country in a destructive conflict whose effects may not be over, some of the officials said. Emirati officials told the U.S. officials that if the U.A.E 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.

In that scenario is an implicit threat to the U.S. dollar, which reigns supreme among global currencies partially because of its near-exclusive use in oil transactions.

The U.A.E Central Bank didn’t respond to requests for comment.

Swap lines are typically administered by the Fed, but its 12-person policy committee, the Federal Open Market Committee, is unlikely to approve one for U.A.E., some of the officials said.

It usually reserves them for relieving severe funding-market pressures that could spill back into the U.S. economy. It has standing arrangements with central banks in the U.K., Canada, Japan, Switzerland, and the European Union. During periods of acute stress, most recently in 2020, it extended swap lines to nine other central banks, including in Mexico, South Korea and Brazil. The U.A.E. has fewer ties to U.S. markets than traditional swap recipients.

The Treasury Department has recently provided alternative swap arrangements without the Fed. The department signed off on a $20 billion swap for Argentina through the Exchange Stabilization Fund last year.

Before a cease-fire took effect on April 17, Iran targeted the U.A.E especially hard, firing over 2,800 drones and missiles, according to the U.A.E.’s Ministry of Defense, although most were shot down.

The Emirati dirham is pegged to the dollar and backed by foreign-currency reserves of $270 billion, but the war has put it under pressures from capital-flight risks, stock-market volatility and other disruptions, analysts said.

The credit-rating firm S&P Global said in a March 6 report that the U.A.E’s “substantial fiscal, economic, external, and policy flexibility will act as an effective buffer” against the war’s economic effects. But it warned that “the potential for prolonged disruption” to its oil exports and damage to infrastructure “add clear risk to our expectations.”