White House discussing currency swap line with UAE

The White House is discussing offering the United Arab Emirates a financial lifeline as the U.S. war with Iran hurts the Gulf nation’s economy, a White House official told CNBC.

The official, who spoke on condition of anonymity about the non-public plans, said the UAE has not formally requested a currency exchange line and plans are not being prepared at this time. The same person said the issue was still being discussed within the administration. Such a move would provide dollar-denominated liquidity to the oil-rich UAE but could be politically weak for the administration as U.S. consumers grapple with high prices at home.

The UAE and other Persian Gulf countries have been hit hard by the US war with Iran. Tehran has fired mass missiles at US regional allies, damaging economic infrastructure. Iran’s closure of the Strait of Hormuz has also largely halted oil exports, on which the UAE depends for cash flow.

The UAE is a particularly close ally of the Trump administration and has sought to expand overtures to Washington since Trump’s return to the White House. The country pledged to invest more than $1 trillion in the United States last year. The Gulf nation’s leaders are also reportedly involved with President Donald Trump’s family business.

On CNBC’s “Squawk Box” on Tuesday, Trump appeared to say he was willing to help the UAE when asked whether a direct currency swap was being considered.

“If I could help them, I would,” the president said. “It was a good country. It was a good ally of ours.”

The White House official said Trump sees the UAE as a major ally of the United States and is open to helping them, but cautioned that swaps are still “something we are considering.”

Even if the administration is open to providing support, the final decision to provide swap lines rests with the Federal Reserve.

Swap lines have historically been limited to major central banks and systemically important markets, so offering a swap to the UAE would represent an unusual expansion of scope.

The possibility of a swap line between the US and the UAE was first raised on the sidelines of World Bank and IMF meetings in Washington last week, when US Treasury officials pulled some Gulf allies aside to ask what they might need to rebuild their economies after the Iran war ends, the official said. The UAE later offered a potential currency swap but did not make a formal request for it. Wall Street Magazine was first reported.

The Journal also reported that the UAE has warned it may have to use the Chinese yuan for oil sales and other transactions if the dollar is in short supply; This is a threat to the dollar’s dominance in oil markets.

A potential currency swap line carries political risk for Trump; Because American voters may see this as a bailout of a foreign, rich country, while American consumers swallow the higher prices.

— CNBC’s Jeff Cox contributed to this report.