The real meaning of UAE reportedly requesting a dollar swap line

By Jules Rimmer

Economists believe the UAE is signalling it wants closer ties with allies, not a bailout

The U.A.E.'s future prospects as an economic, industrial and touristic hotspot have been placed in jeopardy by the threat of regionalescalation in the war between the U.S. and Iran.

A report the United Arab Emirates requested a dollar swap line with the U.S. may be more a threat the Gulf nation could shift an alliance rather than a sign it's about to run short of the American currency, observers said.

The Wall Street Journal reported that the UAE central bank governor, Mohamed Balama, requested a currency-swap line with the U.S. from Treasury Secretary Scott Bessent while in Washington D.C. last week

The UAE is facing pressure from the closure of the Strait of Hormuz, though experts say its economy so far is strong enough to maintain a dollar peg.

The UAE dirham (USDAED) is pegged at 3.67 to the dollar and is currently trading at that level.

Tim Ash, senior strategist at RBC Bluebay Asset Management, pointed out in a posting on X, that sovereigns do not request swap lines lightly.

Brad Setser, senior fellow at the Council on Foreign relations agreed, also highlighting on X that he doesn't believe UAE is in any emergency need of financial assistance, given it entered this conflict with huge holdings of U.S. Treasurys and significant forex reserves in excess of $250 billion. It's important to note that the Emiratis have asked for a swap line and not a credit line.

UAE forex reserves versus holdings of U.S. Treasurys, in billions of dollars.

What the move may reflect is a signal that the UAE could turn to China and perhaps initiate a petroyuan (USDCNY) program to replace the petrodollar version that has been in place for fifty years, according to the Economist's Gregg Carlstrom.

Other commentators have made similar observations. Louis Gave, chief executive officer at Gavekal Research wrote a note for investors last week in which he explored the possibility of the UAE striking up a closer relationship with China. In it, he suggested it might lean on China to exert more influence on its ally Iran to halt the regional destruction because economic cooperation and financial ties between the Gulf states and China have grown significantly in recent years.

Moreover, Gave suggests, the UAE may be "sending a not-so-subtle message to the U.S., namely "leave the region and you will quickly be replaced by China."

Maximilien Hess, a senior fellow at the Eurasia Program at the Foreign Policy Institute, believes the request is "a signalling tool to highlight the depth of U.S.-UAE relations."

Whether the U.S. is prepared to offer a facility normally reserved for longstanding G-10 allies is another matter.

-Jules Rimmer

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04-20-26 0703ET