Iran War Fallout: UAE Moots Shifting To Yuan For Oil Payments If Dollar Liquidity Tightens

Last Updated:April 20, 2026, 09:53 IST

The UAE has held preliminary discussions with the US over a possible currency swap line to secure dollar liquidity as the Iran war threatens oil revenues and foreign reserves.

The United Arab Emirates has initiated discussions with the United States regarding a potential financial safety net to protect its economy if the ongoing conflict with Iran deepens the crisis in the Persian Gulf, The Wall Street Journal reported, citing US officials.

According to the report, UAE Central Bank Governor Khaled Mohamed Balama raised the idea of establishing a currency-swap line during meetings in Washington last week with Treasury Secretary Scott Bessent as well as officials from the US Treasury and the Federal Reserve.

US officials said the Emirati side presented the proposal as a precautionary measure, noting that while the country has thus far avoided the most severe economic consequences of the conflict, it may still require financial support if conditions deteriorate.

CURRENCY SWAP DISCUSSIONS AMID ECONOMIC CONCERNS

The talks reflect growing concern in the UAE that the war could significantly harm its economy and undermine its status as a global financial hub.

According to the report, the conflict has already damaged Emirati oil and gas infrastructure and disrupted tanker traffic through the Strait of Hormuz, cutting off a crucial stream of dollar-denominated oil revenues.

Officials said the Emiratis have not made a formal request for a swap line, but have signalled the need for a potential financial lifeline if pressure on foreign reserves intensifies or investor confidence declines.

US officials also said Emirati representatives indicated that Donald Trump’s decision to attack Iran had drawn their country deeper into the conflict, creating economic risks whose impact may not yet be fully known.

Some officials added that the Emiratis warned that if dollar liquidity becomes constrained, they may have to conduct oil sales or other transactions in alternative currencies such as the Chinese yuan.

Such a shift could pose an implicit challenge to the US dollar’s dominance in global trade, particularly because oil transactions are overwhelmingly conducted in dollars.

SWAP LINE APPROVAL UNCERTAIN

Swap lines are generally administered by the Federal Reserve, but the report mentioned that the Fed’s 12-member Federal Open Market Committee is unlikely to approve such an arrangement for the UAE.

Officials noted that these facilities are typically reserved for situations involving severe funding-market stress that could affect the US financial system.

The Fed maintains standing swap lines with central banks in the United Kingdom, Canada, Japan, Switzerland and the European Union.

During periods of acute financial stress, including in 2020, it extended swap lines to additional central banks such as those in Mexico, South Korea and Brazil.

The UAE is considered to have fewer direct financial links with US markets compared to traditional recipients.

The report mentioned that the Treasury Department has recently pursued alternative swap arrangements outside the Federal Reserve framework, including approving a $20 billion swap line for Argentina last year through the Exchange Stabilisation Fund.

WAR PRESSURES ECONOMY AND FINANCIAL SYSTEM

Before a ceasefire took effect on April 17, Iran launched more than 2,800 drones and missiles targeting the UAE, according to the country’s Ministry of Defence, although most were intercepted.

The Emirati dirham, which is pegged to the US dollar, is supported by foreign currency reserves estimated at $270 billion.

However, analysts cited by the report said the conflict has increased risks of capital flight, market volatility and broader financial disruption.

S&P Global noted in a March 6 report that the UAE’s “substantial fiscal, economic, external, and policy flexibility will act as an effective buffer" against the economic fallout of the war.

However, the ratings agency warned that “the potential for prolonged disruption" to oil exports and infrastructure damage adds clear risk to our expectations.

REGIONAL FINANCIAL MOVES AND DIPLOMATIC SHIFTS

The report further mentioned that the UAE has considered freezing billions of dollars in Iranian assets held within the Gulf state, a move that could weaken one of Tehran’s key financial channels.

However, such action could also disrupt trade and banking relations with Iran and affect the UAE’s attractiveness to politically sensitive capital flows, including funds linked to Russia.

The conflict has also drawn the UAE closer to the United States and, at least temporarily, reduced expectations that diplomatic engagement with Iran could shield it from regional instability.

During IMF and World Bank meetings in Washington last week, US Treasury officials invited Gulf countries to outline their financial and infrastructure needs, indicating that they would be prioritised if assistance becomes necessary.

The report noted that Gulf states have recently raised billions of dollars in debt markets as they seek to strengthen liquidity buffers.

Abu Dhabi raised around $4 billion through private placements arranged by banks, including Goldman Sachs, with the emirate accepting higher borrowing costs in order to secure funding quickly.

Bahrain also established a roughly $5 billion swap line with the UAE earlier this month to support financial stability, according to the country’s central bank.

Saudi Arabia’s finance minister Mohammed Al-Jadaan warned that recovery from the conflict’s disruption may take time, saying, “The basic logistics of scheduling tankers and bringing them back after the chaos we have seen, that will take possibly to the end of June."

He added, “Anyone who’s counting for a quick recovery, even if there is a total end of hostilities, will need to recalculate that," according to the report.

News world Iran War Fallout: UAE Moots Shifting To Yuan For Oil Payments If Dollar Liquidity Tightens

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