UAE officials reportedly warned they may be forced to use yuan or other currencies if they run low on dollars amid the Iran war
The United Arab Emirates has apparently given a hint that the dollar’s dominance in global oil trade may not be guaranteed if the effects of the Iran war worsen.
according to Wall Street MagazineThe UAE central bank governor raised the idea of a currency swap line with Treasury Department and Federal Reserve officials at meetings in Washington, D.C., last week.
Of course, the UAE has plenty of money, including $270 billion in foreign exchange reserves and trillions of dollars in sovereign wealth funds.
But while the UAE is not in a crisis, Iran has damaged its energy infrastructure and blocked oil exports by closing the Strait of Hormuz, putting pressure on dollar-denominated revenue.
If the Iran war triggers a deeper economic downturn, a swap line with the United States would provide the UAE central bank with a cheap supply of dollars that could support the dirham pegged to the dollar or increase foreign exchange reserves if liquidity dwindles, the report said.
According to the sources, UAE officials also pointed out that the US started the Iran war and said they may have to use China’s yuan or other currencies for oil transactions if the availability of the dollar shrinks. Daily.
The UAE central bank did not immediately respond to a request for comment.
A major oil producer’s move away from the dollar would pose a major threat to the currency’s dominance. Saudi Arabia’s decision in 1974 to price its exports in dollars helped establish the dollar as the standard in global oil trade.
As oil is a key input for manufacturing and transportation, supply chains elsewhere have become dollarized, strengthening the dollar’s dominance in payments.
But a war with Iran could worsen some of the cracks already forming in the so-called petrodollar regime. Analysts at Deutsche Bank warned last month.
“Damage to Gulf economies could encourage relaxation in foreign asset dispositions,” they said. “In this context, reports that ships may be allowed to pass through the Strait of Hormuz in exchange for oil payments in yuan need to be followed closely. The conflict may be remembered as an important catalyst for the erosion of petrodollar dominance and the beginning of the petroyuan.”
The loss of the dollar’s “exorbitant privilege” will be reflected in other areas of global finance, including the bond market. Thanks to the dollar being the world’s reserve currency, the federal government has long been able to borrow at lower rates than investors would allow.
But Dan Alamariu, chief geopolitical strategist at Alpine Macro, Does not believe in US decline forecasts. In a memo earlier this month, he acknowledged that if the Iranian regime survives while retaining some control over the strait, it would represent a “strategic setback” for the United States and a humiliation for President Donald Trump.
