UAE raised short term dollar loan from US, threatened to use Chinese Yuan in oil sales: Report
The UAE asked the US to provide a financial lifeline to the country in case the US-Israeli war on Iran dented its economy, even as it warned the US it could replace the petrodollar with Chinese Yuan, according to a report in the Wall Street Journal.
UAE Central Bank Governor Khaled Mohamed Balama raised the idea of the US providing a currency-swap line to Abu Dhabi with Treasury Secretary Scott Bessent and Federal Reserve officials in a meeting last week, the report said.
A currency swap is an agreement between two central banks exchanging currencies. Normally, it is done to allow foreign central banks to obtain lower priced US dollars during times of financial strain. As the world's reserve currency, the US dollar is used to repay debt and purchase imports. The Emirati Dirham is also pegged to the US Dollar at a fixed exchange rate.
The WSJ said the UAE request was "preliminary and precautionary".
The UAE's request for potential assistance came along with what analysts said appeared to be a subtle threat that the UAE would be forced to use the Chinese Yuan or other countries' currencies for oil sales and other transactions.
The UAE, like other Gulf states, sells its oil in the greenback, creating "petrodollars" which are then reinvested in US treasuries, stocks and other international assets. Because oil is the world's most traded commodity, pricing it in US dollars helps cement the currency's reserve status.
Some experts have speculated that the US war on Iran could erode the petrodollar as Gulf states distance themselves from the US by repricing their oil and Iran favours vessels carrying energy priced in Yuan.
But experts told MEE that the US Dollar is likely to remain the preferred currency for Gulf oil sales despite the destabilising impacts of the war.
The US used swap lines - which effectively function as short term loans - during the 2008 financial crisis and Coronavirus pandemic to provide a lifeline to European banks. It also extended the programme to Brazil and Mexico.
But 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, has around $1 trillion in assets. It has an estimated $270bn in reserves, thanks to its oil exports.
Brad Setser, a former US Treasury economist who is now at the Council on Foreign Relations, said that the UAE's request was "slight[ly] 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 (if not the richest) 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, which is 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 for 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.
This article was sourced from Middle East Eye.
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