Preparing for Prolonged Middle East Conflict: "UAE Seeks Currency Swap Line with U.S."

WSJ Cites U.S. Officials

"Before Official Request... In Preliminary Review Stage"

Concerns Grow Over Capital Outflows and Dollar Shortage

The United Arab Emirates (UAE), which has suffered significant damage due to the Middle East war, is reportedly seeking the establishment of a financial safety net from the United States in preparation for a prolonged conflict.

On the 3rd (local time), pedestrians watch the skyline of Dubai, United Arab Emirates (UAE). Photo by AFP Yonhap News

The Wall Street Journal (WSJ) reported on the 19th (local time), citing U.S. government officials, that Khaled Mohamed Balama, Governor of the Central Bank of the UAE, met last week in Washington, D.C. with U.S. Treasury Secretary Scott Bessent, as well as officials from the Treasury Department and the Federal Reserve (Fed), to discuss the establishment of a swap line. However, the UAE has not yet made an official request, and the officials explained that these discussions are still in the "preliminary review stage."

The outlet noted that the UAE is taking preemptive action out of concern over the impact that the war could have on its economy and its status as an international financial center. The UAE's oil and gas infrastructure, as well as the Dubai area, have been exposed to drone and missile attacks from Iran. Disruptions to crude oil exports through the Strait of Hormuz are also shaking the country's main source of dollar income. For these reasons, there are growing concerns about a decline in foreign reserves, capital outflows, and increased stock market volatility.

It has also been reported that the UAE side mentioned to the U.S. that, if a dollar shortage occurs, it may have no choice but to use other currencies such as the yuan for oil transactions. This is considered a variable that could undermine the dollar's standing.

However, the WSJ added that the likelihood of the Fed approving a swap line with the UAE is not high. The Fed has typically only allowed such arrangements when a shock could reverberate back to the U.S. financial market. Nevertheless, it is observed that the U.S. Treasury Department may still consider providing support through alternative means.

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