The Iran war is threatening to inflict major damage on the UAE’s economy. [Getty]
The UAE’s ambassador to the US has mounted a defence of the country’s economy after US President Donald Trump appeared to confirm reports that the Gulf state was exploring emergency liquidity options to deal with the fallout of the Iran war.
“The UAE is one of the world’s most financially resilient economies,” Youssef Al-Otaiba said in a statement posted on social media on Wednesday.
He noted that the UAE has trillions of dollars in investments and reserves, in a bid to calm fears that the country was facing liquidity pressure following the devastating conflict launched by the US and Israel on 28 February.
“Any suggestion that the UAE requires external financial backing misreads the facts,” he said.
“The UAE and the United States will continue to prosper together for decades to come, not because one depends on the other for support, but because both benefit from one of the world’s most important economic partnerships.”
His comments came after Trump on Tuesday appeared to confirm a report by The Wall Street Journal that Emirati officials had approached his administration regarding possible financial support measures.
Asked by a CNBC anchor whether a currency swap was under consideration, Trump replied: “It is.”
“It’s been a good ally of ours … And you know, these are unusual times.”
The Wall Street Journal reported on Sunday that the UAE central bank governor had asked Federal Reserve and Treasury officials about a possible financial backstop if the conflict pushes the Emirati economy deeper into crisis.
US officials said the UAE had not made a formal request for a swap line and portrayed the discussions as precautionary in the event the country runs short of dollars.
Emirati officials have reportedly warned they may be forced to sell oil in Chinese yuan or other currencies if they face a liquidity squeeze, a move that would further weaken the role of the petrodollar in global energy trade.
Currency swap agreements are typically used between countries to provide emergency liquidity to central and commercial banks during periods of market stress.
The US-Israeli war on Iran has threatened to inflict serious damage on the UAE economy, which has boomed in recent years partly by marketing itself as a secure destination for tourism, finance and global investment.
The UAE bore the brunt of Iran’s retaliatory attacks, facing almost half of the estimated 5,800 missiles and drones fired across the Gulf.
Iranian strikes damaged critical energy and industrial infrastructure, while Tehran’s closure of the Strait of Hormuz has thrown the UAE’s role as a regional trading hub into question.
Any proposed swap line with the UAE is likely to face political hurdles in the US. Officials say such a move may struggle to win approval from the Federal Reserve, which has traditionally extended dollar liquidity only to major advanced economies during global crises.
The Treasury has more recently expanded swap arrangements to other countries, though using US public resources to support a country as wealthy as the UAE would likely trigger political backlash.
The Gulf state is estimated to hold almost $4 trillion in dollar-denominated assets, including more than $2 trillion in sovereign wealth fund investments, $300 billion in foreign reserves and around $1.5 trillion within its banking system.
