Gulf Financial Lifeline Shaken by War... UAE Reportedly Seeks 'Dollar SOS' from US (Comprehensive)

It has been reported that even the United Arab Emirates (UAE), a nation enriched by "oil money," has approached the United States seeking dollar support. This is seen as a preemptive measure against concerns that dollar liquidity could become problematic if the U.S.-Iran war turns into a prolonged conflict.

Coastal view of Dubai, United Arab Emirates (UAE), in December 2015. The UAE suffered economic damage from Iranian drone attacks following the outbreak of the U.S.-Iran war on February 28. Photo by Reuters/Yonhap News

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The Wall Street Journal (WSJ) reported on the 19th (local time), citing U.S. government officials, that the UAE held discussions with U.S. Treasury Secretary Scott Bessent, the Treasury Department, and the Federal Reserve (Fed) about the possibility of establishing financial safety nets such as a currency swap line in preparation for a protracted war.

This was not an official request, but rather a "preventive review." Due to the shockwaves from the war, the UAE is facing concerns over declining foreign exchange reserves, capital outflows, and increased stock market volatility. It is also reported that the UAE side mentioned to the U.S. that if there is a shortage of dollars, it may have no choice but to use other currencies such as the yuan for oil trading. If the UAE, following Iran, begins to use the yuan for settlements instead of the dollar, it could undermine the status of the dollar.

The UAE is also reportedly securing funds in the market. It is said to have raised about 4 billion dollars (approximately 5.9 trillion won) through a private placement bond issuance arranged by investment banks such as Goldman Sachs. This move aims to bolster its cash defenses against the potential economic shocks of the war.

The UAE is not the only country suffering economic wounds from the war. The neighboring country Bahrain is considered one of the most vulnerable states amid the aftermath of the current Middle East conflict. The blockade of the Strait of Hormuz, a vital channel for oil exports, along with attacks on critical facilities such as aluminum smelters, have simultaneously impacted both its exports and fiscal stability. According to Qatar-based media outlet NewArab.com, on the 10th, Bahrain recently secured emergency liquidity by entering into a currency swap agreement with the UAE worth 20 billion dirhams (about 5.4 billion dollars).

Global credit rating agency Fitch Ratings commented on this currency swap line between the two countries, stating, "It is more likely a preventive measure to bolster government finances than a crisis response," but also highlighted, "It is clear that Gulf Cooperation Council (GCC) countries see preventing social unrest in Bahrain during the ongoing Middle East conflict as a top priority."

The International Energy Agency (IEA) assessed this situation as "the most severe oil supply shock in history." It noted that disruptions in the Strait of Hormuz, combined with damage to energy infrastructure, are shaking the economies of oil-producing nations across the board.

With numerous oil production bases already destroyed by Iranian airstrikes, it is expected that the fiscal difficulties of affected countries will not be easily resolved. Previously, Saudi Arabia's Finance Minister Mohammed Al-Jadaan, attending the recent International Monetary Fund (IMF) and World Bank meetings, stated, "It will take at least until the end of June to reschedule tanker operations and normalize supply chains," and added, "Expectations for a rapid recovery need to be reconsidered."

Meanwhile, ceasefire negotiations between the U.S. and Iran have reached an impasse following the U.S. military's armed sanctions related to Iran's large cargo ship 'Tosca.' When the Iranian cargo ship, attempting to break through the U.S. maritime blockade, was seized by the U.S. Navy, the Iranian military retaliated with drone attacks. Although the U.S. and Iran were expected to enter into a second ceasefire agreement on the evening of the 20th, just one day before the two-week mark of the ceasefire, this latest clash has increased uncertainty.

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