UAE warns of yuan oil trade shift over dollar access

Yesterday 17:00

By: Dakir Madiha

UAE warns of yuan oil trade shift over dollar access

The United Arab Emirates has warned it may begin settling oil and gas transactions in Chinese yuan if the United States does not provide a dollar liquidity backstop. The message was delivered during high-level meetings in Washington between the UAE central bank governor Khaled Mohamed Balama, US Treasury officials, and Federal Reserve representatives. Emirati officials said the war has strained public finances, reduced dollar buffers, and increased the risk of a hard currency shortage without external support.

Abu Dhabi is seeking access to a Federal Reserve swap line that would allow it to exchange dirhams for dollars during periods of stress. Such arrangements are currently limited to a small group of advanced economies, including the eurozone, the United Kingdom, Japan, Canada, and Switzerland. Extending this facility to the UAE would mark a shift in US crisis policy and signal broader financial commitments during a period of conflict. Officials confirmed that no formal request has yet been submitted.

The UAE warning carries weight because alternative payment infrastructure is already in place. The country participates in mBridge, a multi central bank digital currency platform linking China, Hong Kong, Thailand, and the UAE. By late 2025, the system had processed more than 55 billion dollars in transactions outside the SWIFT network. The UAE has already completed a liquefied natural gas trade with China denominated in yuan. Non oil trade between the two countries exceeds 50 billion dollars annually. Saudi Arabia has also moved in this direction after allowing its exclusive dollar pricing framework to lapse in 2024 and building yuan settlement channels supported by a multi billion dollar swap agreement with China.

The economic backdrop is severe. Since late February, US and Israeli strikes on Iran have triggered sustained retaliation across the Gulf. The UAE has faced repeated missile and drone attacks, damage to energy infrastructure, and disruptions linked to the closure of the Strait of Hormuz. Analysts estimate that the conflict has removed about 50 billion dollars in Gulf oil revenues and cut more than 500 million barrels from global supply. Tensions escalated further after US forces intercepted an Iranian flagged cargo vessel in the Gulf of Oman, the first such action since a naval blockade was imposed. Iran has since rejected further talks and accused Washington of breaching a temporary ceasefire brokered earlier in April, which is now nearing expiration.

UAE officials have also signaled frustration with Washington’s security decisions, arguing that recent military actions against Iran exposed Gulf states to direct retaliation. Debate is growing within the region over the value of longstanding security ties with the United States, including the presence of US military bases that have become targets during the conflict. The currency dispute now intersects with broader strategic questions about financial stability, energy trade, and geopolitical alignment in the Gulf.