The UAE Just Threatened to Price Oil in Yuan Unless America Bails It Out

Oil price is starting to reflect more than just supply concerns. Discussions in the US government last week suggest the UAE is thinking ahead about what happens if dollar funding tightens during the Iran war. Officials didn’t make a formal announcement. But the message was clear enough. If access to dollars becomes an issue, the oil trade itself could start shifting in ways the market hasn’t had to price in for decades.

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China and Japan Are Both Cutting US Treasury Holdings as the War Squeezes Gulf States

According to reports, UAE Central Bank Governor Khaled Mohamed Balama met US Treasury Secretary Scott Bessent and Federal Reserve officials to discuss a potential currency swap line. These arrangements allow countries to access dollars during periods of stress. It further helps in stabilizing reserves and currencies.

The UAE framed the discussion as precautionary. The ongoing Iran war has already disrupted shipping routes and energy flows through the Strait of Hormuz. This has been affecting dollar inflows tied to oil exports. Officials indicated that if the situation drags on and liquidity tightens, they would need a fallback.

As per these officials, the fallback could include settling oil transactions in other currencies such as the Chinese yuan.

Meanwhile, there is an expectation that the Fed will approve the request. Swap lines are usually reserved for G-10 economies and close financial partners. During past crises, the Fed has extended temporary lines more broadly. But this is only when risks directly threaten US markets.

Despite its financial strength, the UAE doesn’t fall into that category. Analysts also point out that the country has significant reserves and access to global borrowing. This reduces the urgency for a Fed-backed facility.

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Treasury demand shifts add to pressure

At the same time, global demand for US debt is evolving. China’s Treasury holdings have dropped to around $693 billion. It is down sharply from the 2013 peak of over $1.3 trillion. Japan remains the largest holder at about $1.225 trillion. But it faces its own pressures from higher energy costs and currency weakness. The shift in reserves and Treasury holdings is already visible in the data.

This matters because Treasuries and the dollar system are closely linked to global oil pricing.

The UAE has not changed how it prices oil. For now, the dollar remains dominant. But even raising the possibility of switching currencies shows how geopolitical and financial pressures are starting to overlap.

S&P Global recently said the UAE is in a strong position financially. But a long war could still create pressure, especially if oil exports are disrupted. For now, nothing has changed in how oil is priced. But the bigger picture is shifting slowly. The oil price, the dollar, and geopolitics are starting to move together again.

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