The UAE doesn’t want a loan from DC — but it does want to send a message

Does the UAE really want what some in the press have framed as a “loan” from the United States? And if it does, why the hell would it need a so-called currency swap when it’s sitting on foreign currency reserves of around USD 300 bn?

Nobody has answers, but let’s follow the breadcrumbs together, ‘cause we’ve got a theory. The long and the short of it: The UAE probably has opened talks on a currency swap — it’s an entirely sensible technocratic move that’s being filtered through (a) financial illiteracy (and poor headline writing) in the global press and (b) a separate leak that’s all about geopolitical posturing.

Let’s start with the facts:

Fact #1: The UAE has plenty of greenbacks in the bank, thank you very much. The Central Bank of the UAE had c. USD 300 bn in foreign currency reserves at the end of February, just before the war began, according to Trading Economics data. It won’t have burned even a fraction of that despite the drying up of FX revenue streams since the war began.

Fact #2: Abu Dhabi Inc has continued to deploy capital abroad throughout the conflict, writing multiple multi-bn USD tickets across industries and continents, as regular readers of our Markets + Deals column will know.

Fact #3: The UAE has easy, affordable access to the global debt market. To pick but one recent data point: Investors placed bids for nearly 5x more than was on offer in the UAE’s AED 1.1 bn Islamic treasury sukuk auction yesterday. The Finance Ministry priced the 2033 tranche at a 10 bps spread over US Treasuries, anchoring the long end of the AED curve.

Okay, so where’s all this talk of a “loan” for the UAE coming from? From Washington to London and New Delhi, journalists who just don’t know better have written in various combinations that the UAE has asked for a “bailout,” a “loan,” and a “lifeline.” The New York Times, which should know better, positioned it as “financial support.”

A report in the Wall Street Journal seems to have set it all off. Wall Street’s favorite newspaper wrote this week that CBUAE Governor Khaled Balama “raised the idea of a currency-swap line with Treasury Secretary Scott Bessent and Treasury and Federal Reserve officials in meetings in Washington last week.” The Journal, which should really know better, wrote that UAE officials had said “they had so far avoided the worst economic effects of the conflict but might still need a financial lifeline.”

The Donald pumped oxygen into the story. Asked if a currency swap might be in the cards, Trump told CNBC’s Squawk Box that “it is” and then added, “I mean, I'm surprised, because they are really rich. If I ⁠could help them, I would, I mean, we're helping them much more with what we're doing with the war.”

Bessent told the US Senate that the UAE was one of several Gulf and Asian countries that had asked about a swap.

But the UAE insists it doesn’t need financial backing: “Any suggestion that the UAE requires external financial backing misreads the facts,” Youssef Otaiba, the UAE’s ambassador to DC, said on X. “The UAE is one of the world’s most financially resilient economies, underpinned by more than USD 2 tn in sovereign investment assets,” Otaiba said, adding that “we very much appreciate President Trump’s recognition of the UAE as one of America’s most important economic [and] trade partners.”

We still believe the UAE asked for a swap. Why? Why would you need a “financial lifeline” if you have USD 300 bn in the vault? Think of it this way: Most of the UAE’s USD holdings are parked in the central bank or locked up in big sovereigns including ADIA, Mubadala, ADQ, L’Imad. Meanwhile, the banking system is being starved of USD inflows from the oil trade and tourism thanks to the war — but banks still need to clear trade, settle payments, and roll their own USD liabilities. Oh, and the swap? It costs nothing and may never be used. It’s cheap insurance.

What the UAE wants is the country-level equivalent of a secured credit card. The UAE is facing a “liquidity mismatch,” not running out of cash, says Ryan Lemand, a former advisor to the UAE government and founder and CEO of wealth manager NeoVision. He writes in a LinkedIn post that “No one is giving anyone money. It's a currency loan, secured by a currency deposit, with no credit risk on either side.” The Fed, he notes, has standing swap lines with the EU, Canadian, Japanese, and UK central banks. “None of those counterparties were receiving ‘aid.’”

Geopolitics rears its ugly head

So where does geopolitics come into this? For starters, the US doesn’t want to see countries around the world — squeezed by the fallout from its war on Iran — start dumping treasuries. Bessent told the Senate that “swap lines, whether it’s from the Federal Reserve or the Treasury, are to maintain order in the USD funding markets and to prevent the sale of the US assets in a disorderly way. The swap line would both benefit the UAE and the US.”

The Wall Street Journal also warned that the UAE had intimated it was considering pricing oil in RMB, and that claim spread like wildfire, feeding into a multiyear story arc that has seen actors including Russia, China, and in some emerging markets picking at the USD’s position as the world’s currency of choice for trade and reserves.

Why would the UAE float pricing oil in RMB? It’s about a better position at the bargaining table. On the one hand, no US administration can accept a challenge to the dominance of the petrodollar. On the other, the UAE is looking to bolster its bargaining position on a host of issues including continued access to AI chips and compute (a thorny issue until Abu Dhabi turned its back on Chinese tech), the restocking of air defense systems, finally getting access to the F-35 program (still stalled), ensuring that UAE investments in the US (demanded by Trump) get preferential treatment by prickly regulators (hello, CFIUS — and pre-cleared investment corridors or AI and critical tech infrastructure), and a seat at the post-war regional table. There’s a reason, friends, that the crown prince of Abu Dhabi was in Beijing last week.

We wouldn’t be surprised to see tariffs on Emirates Global Aluminium ease in the months ahead as EGA starts working to repair damage to its production lines incurred during the war…