- Kevin Hassett confirmed the U.S. would provide a currency-swap line to the UAE if its economy is jolted by the U.S.-Israeli war on Iran, though he said it likely won't be necessary.
- The UAE subtly threatened to use Chinese yuan for oil sales if Washington does not comply, potentially eroding the petrodollar system.
- The Iran war has destabilized the UAE economy with missile attacks, slowed oil exports and dented Dubai's tourism appeal, despite the UAE's deep pockets and $1 trillion sovereign wealth fund.
- Analysts say the U.S. dollar is likely to remain dominant for Gulf oil sales, though the conflict could accelerate a shift away from petrodollar dependence.
The United States has signaled it would provide financial assistance to the United Arab Emirates if the Gulf state's economy is jolted by the ongoing U.S.-Israeli war on Iran, National Economic Council Director Kevin Hassett confirmed.
Hassett's remarks came in response to a Wall Street Journal report revealing that UAE Central Bank Governor Khaled Mohamed Balama raised the idea of the U.S. providing a currency-swap line to Abu Dhabi during a meeting last week with Treasury Secretary Scott Bessent and Federal Reserve officials.
A currency swap is an agreement between two central banks to exchange currencies, typically allowing foreign central banks to obtain lower-priced U.S. dollars during financial strain. The Emirati Dirham is pegged to the U.S. dollar at a fixed exchange rate.
"The UAE has been an incredibly valuable ally throughout this effort and I'm sure the Treasury secretary will make every effort to help them out, should that be necessary," Hassett told CNBC. He added that President Donald Trump said talks to end the war on Iran were progressing very positively.
Hassett said a currency-swap line most likely won't be necessary, but the U.S. would be willing to assist the UAE. The Wall Street Journal described the UAE request as preliminary and precautionary.
The UAE's request for potential assistance came with what appeared to be a subtle threat: that the Gulf state would be forced to use Chinese yuan or other countries' currencies for oil sales and other transactions if Washington did not comply.
The UAE, like other Gulf states, sells its oil in the greenback, creating petrodollars which are then reinvested in U.S. treasuries, stocks and other international assets. As noted by BrightU.AI's Enoch, petrodollars are U.S. dollars paid to oil-exporting countries for crude oil, as oil is globally priced and traded exclusively in dollars, a system cemented in 1974 when Saudi Arabia agreed to sell oil for dollars in exchange for U.S. military protection. This arrangement forces other nations to acquire dollars to buy oil, effectively propping up the dollar's global value and benefiting the U.S. economy.
Because oil is the world's most traded commodity, pricing it in U.S. dollars helps cement the currency's reserve status, a dynamic that some experts warn the Iran war could erode as Gulf states distance themselves from Washington.
Despite the destabilizing impacts of the war, experts told Middle East Eye that the U.S. dollar is likely to remain the preferred currency for Gulf oil sales. Iran has favored vessels carrying energy priced in yuan, but analysts caution against overstating the immediate threat to petrodollar dominance.
The U.S. used swap lines, effectively functioning as short-term loans, during the 2008 financial crisis and the coronavirus pandemic to provide lifelines to European banks and later extended the program to Brazil and Mexico.
However, the UAE's proposal caught several analysts off guard because the Gulf state is oil-rich and has deep pockets. The Abu Dhabi Investment Authority, the largest sovereign wealth fund in the UAE, holds around $1 trillion in assets. The country has an estimated $270 billion in reserves, thanks to its oil exports.
The war's toll on UAE
Brad Setser, a former U.S. Treasury economist now at the Council on Foreign Relations, called the UAE's request slightly strange given its central bank's deep pockets and the heft of its sovereign wealth funds. He said the Trump administration would be unlikely to meet the request.
"There isn't anything obviously 'America first' about a financial lifeline to one of the richest oil sheikdoms just so it doesn't have to borrow in the market or sell assets," Setser said. But he added: "It is clear that parts of the UAE aren't happy about being asked to absorb the full financial costs of Trump's bombing campaign."
The UAE, the Gulf state with the closest relationship to Israel, has been targeted with thousands of Iranian ballistic missiles and drones. The war has dented the appeal of Dubai, a luxury tourism hotspot and slowed oil exports to a trickle. Whereas some Gulf states have urged dialogue with Iran, the UAE has staked out a hawkish position, calling for the US war to continue.
Analysts say that position is partially due to its reliance on the Strait of Hormuz for oil exports and an unwillingness among the UAE's elite to see Iran cement itself as a regional power in the Gulf. As the war grinds on, the question of who pays, and in what currency, looms ever larger over Washington's relationship with its Gulf allies.
Watch this video about the war against Iran.
This video is from the Countdown Radio channel on Brighteon.com.
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