The dedollarisation push could gain fresh momentum amid the ongoing tensions as the United Arab Emirates (UAE) has warned the United States that a prolonged Iran conflict may strain its dollar reserves, opening the door to oil trade in alternative currencies such as the Chinese yuan, The Wall Street Journal reported. The signal from one of the Gulf’s key financial hubs highlights rising concern that escalating regional tensions could accelerate a shift away from the dollar in global energy markets.
Citing US officials, The Wall Street Journal reported that Emirati authorities have asked Washington for a financial safety net in case the conflict triggers a deeper economic crisis. The discussions underscore fears that continued hostilities could weaken the UAE’s position as a global financial hub, drain foreign reserves, and deter investors who have long viewed the country as a stable destination.
Officials indicated that while the UAE has so far avoided the worst economic impact of the war, it is preparing for potential shocks that could disrupt capital flows and financial stability.
During meetings in Washington last week, UAE Central Bank Governor Khaled Mohamed Balama raised the possibility of a currency swap arrangement with US Treasury Secretary Scott Bessent and officials from the US Treasury and Federal Reserve, the report said.
Emirati officials told their US counterparts that in the event of a dollar shortage, the country may be forced to conduct oil sales and other transactions in alternative currencies, including the Chinese yuan. Such a shift would mark a significant departure from the dollar-dominated global oil trade.
Fed unlikely to approve currency swap line
According to officials familiar with the matter, any such currency swap facility would require approval from the US Federal Reserve. However, The Wall Street Journal reported that the Federal Open Market Committee is unlikely to extend such support to the UAE.
The Fed typically reserves swap lines for close financial partners or during periods of severe global stress that could spill over into the US economy. Existing arrangements are largely limited to major economies such as the United Kingdom, Japan, Canada, Switzerland and the European Union, with temporary extensions granted during crises like the COVID-19 pandemic.
Conflict impact raises economic concerns
The UAE has conveyed to US officials that the widening conflict—triggered after US President Donald Trump’s decision to strike Iran—has drawn the region into a prolonged and potentially damaging confrontation, the report noted.
The situation has already heightened security risks. According to the UAE Ministry of Defence, Iran has launched over 2,800 drones and missiles targeting the UAE and other Gulf nations, most of which were intercepted.
Strong buffers, but risks persist
Despite the mounting pressures, the Emirati dirham remains pegged to the US dollar and is supported by approximately $270 billion in foreign-currency reserves. Analysts cited by The Wall Street Journal said these buffers provide resilience but warned of rising risks, including capital flight, market volatility and disruptions to economic activity.
Ratings agency S&P Global noted that the UAE’s fiscal strength and external reserves should help cushion immediate shocks. However, it cautioned that prolonged conflict, especially if it disrupts oil exports or damages infrastructure, could pose significant long-term risks.
The broader Gulf region has also moved to shore up financial stability, with countries raising billions of dollars in debt in recent weeks. The International Energy Agency has described the current situation as the “most severe oil-supply shock in history,” highlighting the scale of disruption facing global energy markets.
As the conflict continues, the UAE’s outreach to the US signals a growing urgency among Gulf economies to secure financial safeguards against an increasingly uncertain geopolitical landscape.