The United Arab Emirates (UAE) has warned the United States that a prolonged Middle East conflict could force a historic shift away from the US dollar for oil transactions, potentially turning to the Chinese yuan or establishing a currency swap line with Washington. This comes as Iran is already accepting Bitcoin and yuan for shipping access through the critical Strait of Hormuz.
According to a Wall Street Journal report, UAE officials, including central bank governor Khaled Mohamed Balama, held preliminary talks in Washington with US Treasury Secretary Scott Bessent and Federal Reserve officials. The discussions centered on securing financial safeguards, such as a dollar swap line, should the conflict with Iran worsen and strain the UAE's foreign reserves and dollar liquidity.
The geopolitical tensions have disrupted key economic channels, particularly oil exports routed through the Strait of Hormuz. This disruption limits the UAE's access to dollar revenues, raising concerns about capital outflows and pressure on its position as a global financial hub. Officials emphasized that while the UAE has so far avoided the worst economic fallout, prolonged disruption could force a move to alternative currencies for transactions.
In a related development, US President Donald Trump confirmed in a CNBC interview that Washington is considering financial support measures for the UAE, describing the country as a "good ally." When asked about a potential currency swap arrangement, Trump stated, "It is," and added, "If the UAE had a problem... we would be there for them." He expressed surprise at the need, noting the UAE's wealth, but affirmed a willingness to help.
Analysts note that approval from the Federal Reserve for a traditional swap line may be unlikely due to the UAE's limited direct exposure to US funding markets. However, alternative mechanisms, such as using the Treasury's Exchange Stabilization Fund—similar to a $20 billion arrangement with Argentina last year—remain possible.
The situation underscores a significant risk: if dollar access becomes constrained, major oil-producing nations could begin transacting in other currencies, a shift with profound implications for the global financial system and the dollar's dominance in energy markets.
