The United Arab Emirates (UAE) has quietly opened talks with the United States to secure a financial backstop, as the ongoing Iran war raises fears of deeper economic fallout for the Gulf state.
According to US officials, UAE Central Bank Governor Khaled Mohamed Balama discussed the possibility of a currency swap line during meetings in Washington last week. The talks involved US Treasury Secretary Scott Bessent, along with officials from the US Treasury and the Federal Reserve.
Emirati officials stressed that while the country has so far avoided the worst economic impacts of the conflict, it may still need a financial safety net if conditions worsen.
The discussions highlight growing concern in the UAE that the war could significantly damage its economy and status as a global financial hub.
Officials fear the conflict could drain foreign reserves, trigger capital flight, and deter investors who have long viewed the UAE as a stable destination for capital.
The war has already damaged Emirati oil and gas infrastructure and disrupted tanker routes through the Strait of Hormuz, cutting off a vital source of dollar revenue.
No formal request yet, but risks mounting
Despite the urgency, Emirati officials have not formally requested a swap line. Instead, they have described the proposal as precautionary and preliminary.
A swap line would allow the UAE central bank to access US dollars at low cost to stabilize its currency or replenish reserves during a liquidity crisis.
Officials also conveyed that the situation stems partly from President Donald Trump’s decision to attack Iran, which they say pulled the UAE deeper into the conflict.
Implicit warning over shift away from US dollar
In private discussions, Emirati officials warned that if dollar shortages arise, the country may turn to alternative currencies such as the Chinese yuan for oil sales and other transactions.
Such a move could challenge the dominance of the US dollar, which remains the primary currency used in global oil trade.
While swap lines are typically managed by the Federal Reserve, approval for the UAE appears unlikely.
The Federal Open Market Committee generally reserves such arrangements for major funding crises that could impact the US economy.
Currently, standing swap lines exist with countries like the UK, Canada, Japan, Switzerland, and the European Union. Temporary lines were extended to nations including Mexico, South Korea, and Brazil during crises like the 2020 pandemic.
The UAE’s relatively limited financial ties to US markets reduce its chances of qualifying.
Alternative support options
The US Treasury has previously provided swap-like support outside the Federal Reserve framework. For example, it approved a $20 billion arrangement for Argentina through the Exchange Stabilization Fund last year.
Officials indicated similar alternative mechanisms could be considered if needed.
Before a ceasefire took effect on April 17, Iran heavily targeted the UAE, launching more than 2,800 drones and missiles, according to the UAE Ministry of Defense. Most were intercepted.
In a recent interview, Reem Al Hashimy confirmed the scale of attacks, noting the sustained pressure on the country since the conflict began on February 28.
The Emirati dirham, pegged to the dollar and backed by $270 billion in reserves, is now facing pressure from capital flight risks and stock market volatility.
Credit rating agency S&P Global noted in a March 6 report that the UAE’s strong fiscal and economic flexibility should act as a buffer. However, it warned that prolonged disruption to oil exports and infrastructure damage poses significant risks to economic stability.
Regional financial moves, rising debt
Amid uncertainty, Gulf nations have begun strengthening their financial positions.
The UAE has reportedly threatened to freeze billions of dollars in Iranian assets held within its borders, a move that could cut off a key economic lifeline for Tehran — but also risk damaging its own financial ties and reputation among global investors.
The conflict has also pushed the UAE closer to the United States, while weakening its earlier strategy of maintaining balanced ties with Iran.
Debt raising, liquidity strategies
Gulf countries have raised billions of dollars in recent days to ensure liquidity during what the International Energy Agency has called “the most severe oil-supply shock in history.”
Abu Dhabi alone secured around $4 billion through private placements arranged by banks including Goldman Sachs, borrowing at a premium to speed up fundraising.
Meanwhile, Bahrain established a $5 billion swap line with the UAE to enhance financial stability.
Global financial leaders attending the IMF and World Bank meetings in Washington signaled that recovery will not be immediate.
Saudi Finance Minister Mohammed Al-Jadaan warned that even if hostilities end, restoring oil logistics and tanker schedules could take until the end of June.
He cautioned that expectations of a quick recovery may need to be reassessed.
