UAE seeks US financial backstop amid Iran war fallout, warns of possible shift from dollar

The United Arab Emirates has held discussions with the United States over securing a potential financial backstop as the fallout from the Iran conflict threatens to strain its economy, according to a report by The Wall Street Journal.

Citing U.S. officials, the report said the idea of support measures — including a possible currency swap arrangement — was raised by UAE Central Bank Governor Khaled Mohamed Balama during meetings in Washington with Treasury Secretary Scott Bessent, as well as officials from the Treasury and the Federal Reserve.

Emirati officials indicated that while the UAE has so far avoided the most severe economic impacts of the conflict, it may require financial support if conditions worsen. They also signalled that tighter dollar liquidity could push the country to use alternative currencies, including the Chinese yuan, for oil sales and other transactions.

Oil disruption and capital risks

The talks come as the conflict has disrupted key sectors of the UAE economy. Damage to energy infrastructure and restrictions on tanker traffic through the Strait of Hormuz have affected a major source of dollar-denominated revenue.

Officials cited in the report also pointed to rising risks of capital flight and market volatility, potentially challenging the UAE’s role as a regional financial hub.

The Emirati dirham remains pegged to the U.S. dollar and is supported by foreign currency reserves estimated at around $270 billion. However, analysts say the conflict has increased pressure through capital outflows and broader economic disruption.

US cautious on swap arrangements

Currency swap lines, typically managed by the Federal Reserve, are extended selectively during periods of financial stress. The Fed maintains standing arrangements with major economies including the UK, Japan, Canada, Switzerland and the euro area.

According to the report, U.S. officials said the Federal Open Market Committee is unlikely to approve a swap line for the UAE, citing relatively limited financial integration with U.S. markets.

During previous crises — including the 2008 global financial crisis and the COVID-19 pandemic — the Federal Reserve expanded swap facilities to stabilise global dollar funding markets. The U.S. Treasury has also provided alternative support in some cases, including a $20 billion swap arrangement for Argentina through the Exchange Stabilization Fund last year.

Regional impact and financial measures

The discussions follow a period of intense hostilities before a ceasefire took effect on April 17. UAE authorities said Iran launched more than 2,800 drones and missiles during the conflict, most of which were intercepted.

The disruption to oil flows forms part of a broader regional shock, which the International Energy Agency has described as one of the most severe supply disruptions on record.

Gulf states have moved to bolster liquidity in response. Abu Dhabi raised around $4 billion through private placements earlier this month, while Bahrain established an estimated $5 billion swap line with the UAE to support financial stability, the WSJ reported.

Outlook and policy considerations

A recent report by S&P Global said the UAE’s strong fiscal and external buffers should help absorb economic shocks, but warned that prolonged disruption to oil exports and infrastructure damage could weigh on the outlook.

The UAE has also considered measures such as freezing Iranian assets held within the country, a step that could further affect trade and financial flows.

Finance ministers and central bankers attending meetings of the International Monetary Fund and the World Bank in Washington said recovery is unlikely to be immediate. Saudi Finance Minister Mohammed Al-Jadaan noted that logistical disruptions to oil shipments could persist for weeks even after hostilities subside.

U.S. Treasury officials have also asked Gulf countries to outline reconstruction and financing needs, signalling readiness to provide support if required.