To understand what the swap agreement currently under discussion truly represents, one must first grasp its institutional rarity. The US Federal Reserve maintains permanent swap agreements with only five central banks: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. Even during the Covid-19 crisis, when the Fed temporarily extended this tool to nine additional central banks, none came from the Arab world. Discussing a comparable mechanism with the United Arab Emirates therefore represents a historically unprecedented development. It says more about the depth of the US-Emirati alliance than about Abu Dhabi’s cash needs.
The UAE’s financial situation is not that of a country in distress. The Emirates held $285 billion in foreign exchange reserves at end-2025, and their dollar assets exceed their dollar liabilities by approximately $1 trillion — one of the strongest net international investment positions in the world. Add to this sovereign wealth funds representing more than $2 trillion in assets under management. UAE Ambassador to the United States Yousef Al Otaiba himself denied any need for external support, stating that this reading “misrepresents the facts.”
If the UAE does not need general financial support, the dollar question nonetheless arises. The debt market for Emirati entities reached $309 billion outstanding at end-2025, of which 68.5% was dollar-denominated — approximately $211 billion in bonds to be serviced in that currency. In 2024 alone, Emirati entities issued $37.9 billion in new dollar-denominated bonds. The dirham has moreover been pegged to the dollar since 1997 at a fixed rate of 3.6725: maintaining this exchange rate regime requires holding sufficient dollar reserves at all times to defend the peg. Yet the closure of the Strait of Hormuz has reduced Emirati oil exports by more than half, and thus the incoming dollar flows (global oil sales being conducted in US currency). The question is therefore not one of solvency — the UAE holds $285 billion in reserves and more than $2 trillion in its sovereign funds — but rather of a risk of dollar liquidity strain: if the blockade persists, dollar inflows will decline durably while dollar-denominated obligations continue to run. It is precisely this asymmetry risk that the swap would hedge against, not as a safety net for a poor country, but as a liquidity insurance for a country structurally exposed to the dollar through its financial commitments and exchange rate regime.
Behind this liquidity question looms a systemic risk for US markets that Washington cannot ignore. The Emirati sovereign wealth funds — Mubadala, the Abu Dhabi Investment Authority, ADQ — hold assets estimated at more than $1 trillion, with a significant portion in US bonds and assets. Yet these portfolios are predominantly invested in private equity, infrastructure, and real estate — illiquid assets that cannot be quickly converted into dollars when commercial revenues suddenly dry up. Using these assets to cover short-term needs could severely disrupt US markets — a downward spiral comparable, according to UBS, to the Truss crisis in the United Kingdom in 2022. This is precisely the scenario that Secretary Bessent raised before the Senate: swap lines are designed to “prevent disorderly sales of US assets as well as disruptions to US markets, businesses, and households.” A forced disposal of these holdings would shake global bond markets, driving up US Treasury yields and tightening financing conditions at a time when Washington, already heavily indebted, is waging a costly war against Iran. The swap agreement would therefore not only protect the UAE from a liquidity crisis: it would also protect US markets from a forced asset liquidation that Washington could not absorb.
The other reason the United States should accede to the Emirati request is the warning that accompanied it: if the UAE were to run short of dollars, it might be forced to use the Chinese yuan rather than the US dollar for its oil transactions and trade. This would carry considerable weight, as dollar dominance rests largely on its near-monopoly in global oil transactions. The fact that a Gulf ally is openly raising the possibility of selling its oil in yuan cannot but give Washington pause.
This is why Secretary Bessent, before a Senate appropriations subcommittee, described swap lines as “a testament to the primacy of the US dollar and the strength of America’s economic shield,” before adding that extending permanent swap lines could constitute “a major first step in creating new dollar financing hubs in the Gulf and Asia.”
This is where the swap agreement reveals its true nature: it is less a crisis instrument than a tool of financial statecraft — in the sense that theorists of international relations give the term. Swap lines could evolve to become a bilateral alternative to the IMF. Unlike Fund programs, they can be faster, more targeted, and come with different or less visible conditionalities. In a more fragmented world order, this type of parallel system could take on growing importance. By including the UAE in this mechanism, Washington would formalize their inclusion in the central infrastructure of the dollar.
This is where the swap agreement reveals its true nature: it is less a crisis instrument than a tool of financial statecraft — in the sense that theorists of international relations give the term. Swap lines could evolve to become a bilateral alternative to the IMF. Unlike Fund programs, they can be faster, more targeted, and come with different or less visible conditionalities. In a more fragmented world order, this type of parallel system could take on growing importance. By including the UAE in this mechanism, Washington would formalize their inclusion in the central infrastructure of the dollar.
