“The dollar is our currency, but it's your problem," US Treasury Secretary John Connally told allied finance ministers in 1971. For half a century, the world lived with that arrangement. Now, one of America's closest allies is sending the problem back. The Iran war has just handed the United States a bill it cannot afford to ignore. The UAE, a country that controls one of the world's largest sovereign wealth portfolios, hosts American military assets, and has stood beside the US through this war, is now reportedly telling the Trump administration: Provide us with emergency dollar support, or we will turn to the Chinese yuan.
According to a report by the Wall Street Journal, the UAE has opened talks with the US about obtaining a financial backstop in case the Iran war plunges the oil-rich Persian Gulf state into a deeper crisis. UAE Central Bank Governor Khaled Mohamed Balama raised the idea of a currency-swap line with US Treasury Secretary Scott Bessent and Treasury and Federal Reserve officials in meetings in Washington last week, the report said, citing US officials.
The UAE officials, according to the WSJ report, said that they had so far avoided the worst economic effects of the conflict but might still need a financial lifeline. They reportedly told the US officials that if the UAE runs short of dollars, it may be forced to use Chinese yuan or other countries' currencies for oil sales and other transactions.
If the currency swap comes into play, this will be an implicit threat to the US dollar. The currency reigns supreme among global currencies partially because of its near-exclusive use in oil transactions. Emirati officials 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, the report added.
Swap lines are usually administered by the US Fed. However, its policy committee is unlikely to approve one for UAE, WSJ reported. It usually reserves them for relieving severe funding-market pressures that could spill back into the U.S. economy.
Earlier, in a note, S&P Global had said 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."
The stakes extend well beyond the Gulf. The dollar's supremacy in global trade rests significantly on its near-exclusive use in oil transactions. A shift, even partial, even emergency-driven, by a major Gulf producer toward yuan-denominated trade would mark a significant moment in the long-running contest over the future of dollar hegemony.
The UAE has been facing mounting risks from the ongoing conflict involving Iran that has led to disruptions at the Strait of Hormuz. The gulf nation has so far avoided the worst economic fallout. But there have been concerns that the prolonged disruptions, particularly to oil shipments could dent dollar revenues. The UAE’s economy is heavily reliant on hydrocarbon exports.
Recently, the International Monetary Fund (IMF) has also warned of strain to the emerging economies due to the Iran War. It has cut the 2026 growth forecast of UAE to 3.9 per cent from 4.2 per cent earlier due to rising energy costs, inflation and financial uncertainty.
Growth in West Asia and Central Asia is now seen slowing sharply to 1.9 per cent, IMF said cautioning that higher import bills, weaker currencies and lower capital inflows could deepen financing stress.
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