The United Arab Emirates has opened talks with Washington about a dollar liquidity backstop — and warned that without one, it may shift oil and gas transactions to Chinese yuan, according to the Wall Street Journal.
Central Bank Governor Khaled Mohamed Balama brought the proposal to Federal Reserve officials and Treasury Secretary Scott Bessent in Washington last week, the Journal reported. Abu Dhabi’s position, relayed through multiple officials: the war has strained its finances, dollar reserves could come under pressure, and if Washington does not provide a liquidity facility, the UAE may have little choice but to settle oil and gas trades in yuan or other non-dollar currencies. Emirati officials also told their US counterparts that Trump’s decision to attack Iran was what drew the country into the conflict to begin with. No formal application for a swap line has been submitted.
The mechanism being discussed — a bilateral currency swap with the Federal Reserve — would allow the UAE Central Bank to draw down dollars against dirhams at the prevailing exchange rate, effectively insuring against a hard-currency crunch without requiring emergency asset sales.
The Fed currently holds standing arrangements of this kind with five central banks: the European Central Bank, the Bank of Canada, the Bank of England, the Bank of Japan, and the Swiss National Bank. Extending one to the UAE would mark a meaningful expansion of the Fed’s wartime financial commitments.
What makes the yuan threat credible is that the UAE does not need to build new infrastructure to act on it. The country is a founding member of mBridge, a multi-central bank digital currency platform linking China, the UAE, Hong Kong, and Thailand that had settled more than $55 billion in transactions by late 2025 — operating entirely outside the SWIFT network.
The UAE has already completed its first yuan-denominated LNG trade with China, and annual bilateral non-oil commerce between the two countries now exceeds $50 billion. Pivoting a share of oil settlement to yuan would be a policy choice, not an engineering problem.
The broader stakes are the petrodollar system itself — the arrangement struck in 1974 under which Gulf states committed to dollar-denominated oil pricing and channeled surplus revenues into US Treasuries, in return for American security guarantees.
That agreement created a self-reinforcing loop of global dollar demand that has underwritten US deficit financing ever since. The system has been fraying at the edges: Saudi Arabia quietly let its exclusive dollar-pricing commitment lapse in June 2024 and has since developed yuan settlement infrastructure, including a bilateral currency swap with China worth $7 billion and full participation in mBridge. The UAE’s ultimatum suggests the war is compressing a slow structural shift into something faster.
The UAE’s immediate economic pressure is real. The country has absorbed more than 2,800 missiles and drones since US-Israeli strikes on Iran began on February 28, sustained damage to energy infrastructure, and watched oil revenues evaporate as the Strait of Hormuz closure severed its primary dollar earnings channel — including throughput at Jebel Ali, one of the world’s largest cargo ports.
The war has drained roughly $50 billion in Gulf oil revenues since February 28, with more than 500 million barrels knocked out of global supply at an average price of around $100 a barrel, according to Kpler senior crude analyst Johannes Rauball in a Reuters report.
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