The UAE’s central bank governor has privately warned Washington that if the economic fallout from America’s war against Iran continues shrinking Emirati dollar reserves, Abu Dhabi may be left with no choice but to settle oil transactions in Chinese yuan or other currencies. The warning, reported by the Wall Street Journal, was delivered by UAE Central Bank Governor Khaled Mohamed Balama directly to Treasury Secretary Scott Bessent and Federal Reserve officials in Washington last week — and represents the most serious challenge to the petrodollar system since Saudi Arabia first tied oil pricing to the dollar in 1974.
The numbers behind the warning
Iran launched one of the largest missile and drone barrages ever directed against Gulf infrastructure after US military operations earlier this year, targeting Emirati energy facilities and maritime assets. Although most projectiles were intercepted, the attacks disrupted petroleum exports, damaged logistics networks, and reduced tanker traffic through the Strait of Hormuz. Because the Strait handles approximately one-fifth of all globally traded petroleum, even partial disruption immediately constrains Emirati export revenues and dollar inflows. Recovery of full export capacity may not come until late June.
What Balama asked Washington for
During meetings in Washington last week, Balama raised the idea of establishing a currency swap line with the US Treasury and Federal Reserve. The mechanism would give Abu Dhabi rapid access to dollars during an emergency, stabilising the dirham peg and preventing a domestic liquidity crunch from spreading into the banking system and sovereign wealth funds.
Unlike the UK, Japan, Canada, and several other major economies, the UAE does not currently hold a permanent Federal Reserve swap arrangement. The Wall Street Journal reported that Fed approval for such a line is considered unlikely, pointing to precedent in which the Treasury instead arranged a $20 billion support package for Argentina. US officials have nonetheless signalled willingness to assist. National Economic Council Director Kevin Hassett told CNBC that the UAE had been an incredibly valuable ally and that the Treasury would make every effort to help if needed.
“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.”
— Kevin Hassett, National Economic Council Director, April 2026
Why the threat carries real strategic weight
The petrodollar system has underpinned American financial power for fifty years. Under the arrangement established in 1974, Gulf producers price oil in dollars and recycle petroleum revenues into US Treasury bonds and financial markets. This cycle sustains global demand for dollars, keeps American borrowing costs below what markets would otherwise price, and anchors the dollar’s position as the world’s dominant reserve currency.
The UAE is one of the world’s largest hydrocarbon exporters. Any deviation from dollar settlement — even a limited, tactical one — would carry symbolic weight far exceeding the transaction volume involved. It would provide political cover for Beijing’s broader campaign to internationalise the yuan through energy markets, and could set a precedent that Saudi Arabia and other Gulf producers eventually follow.
Iran has already begun demanding payment in yuan or cryptocurrency from vessels it considers neutral in the Hormuz corridor, creating a parallel pricing structure that bypasses Western financial infrastructure. If Emirati sellers begin accepting yuan as well, the credibility of a dollar-free energy settlement layer would increase substantially.
What each party stands to gain or lose
The UAE entered the crisis with over $270 billion in foreign exchange reserves, but sustained disruption to Hormuz tanker traffic has slashed the dollar inflows it depends on to fund its dirham peg, domestic banking system, and sovereign funds. Recovery of full oil export capacity may not come until late June. Emirati officials have also considered freezing Iranian assets held domestically — a move that could sever a vital Tehran revenue channel, but also risk undermining Dubai's appeal as a politically neutral financial centre.
Washington spent an estimated $2 billion per day in the first 40 days of the Iran conflict, according to Harvard Kennedy School Professor Linda Bilmes. The Trump administration has floated the idea of Gulf states sharing war costs, while National Economic Council Director Kevin Hassett has said the US would assist the UAE if necessary — but stopped short of committing to a formal currency swap line. Federal Reserve approval for such a line is considered unlikely under existing precedent.
Beijing has spent years constructing the infrastructure for cross-border energy settlements outside dollar networks — including yuan swap lines, the mBridge digital payment platform, and bilateral clearing arrangements. Iran has also been demanding payment in yuan or cryptocurrency from vessels transiting a Hormuz corridor it considers neutral. Any Emirati yuan transaction, even limited, would provide political legitimacy for China's wider dedollarisation strategy without requiring Beijing to confront the dollar system directly.
Riyadh locked oil pricing in dollars in 1974, cementing the petrodollar arrangement. Saudi Arabia and other Gulf Cooperation Council members are watching the UAE episode closely. Any shift by Abu Dhabi — even a symbolic one — could create pressure on Riyadh to consider its own options, particularly as analysts at Deutsche Bank have warned that damage to Gulf economies could encourage an unwinding of their foreign asset savings and dollar reserve holdings.
Why analysts think this is leverage, not revolution
Most analysts caution against reading the Emirati warning as a signal of imminent dedollarisation. The dirham remains hard-pegged to the dollar, meaning any abrupt currency shift would damage domestic financial stability before it hurt Washington. Paul Blustein of the Center for Strategic and International Studies notes that the dollar’s dominance rests on structural advantages — depth, liquidity, and free capital mobility — that the yuan cannot currently match. The dollar still accounts for well over half of global central bank reserves, cross-border trade invoices, and international bond issuance.
Geopolitical strategist Dan Alamariu has also argued that the Gulf Cooperation Council has every incentive to maintain close US ties, given China’s own relationships with Iran. An Emirati pivot toward Beijing would mean aligning financially with a country that has been a major backer of the regime responsible for attacking Emirati territory.
The episode is therefore most accurately understood as a high-stakes diplomatic signal — Abu Dhabi using the yuan threat as leverage to accelerate American financial assistance before the situation deteriorates further. Whether or not a swap line materialises, however, the warning has already achieved one effect: every Gulf government is now watching how Washington responds to a key ally that absorbed Iranian missile strikes on America’s behalf, and their conclusions will shape the region’s financial and strategic alignment for years.