UAE warns it could sell oil in yuan if dollar liquidity crunch hits

The United Arab Emirates (UAE) has warned Washington it could switch to Chinese yuan or other currencies to settle oil sales if it faces a severe shortage of US dollars, Russian oil industry publication Neft i Kapital reported on April 21.

The warning came during talks between UAE and US officials over a potential financial lifeline in case the US-Iran war pushes the Gulf state into a deeper crisis. Emirati officials signalled to Washington that if an acute dollar shortage emerged, they could begin settling for oil in yuan or other currencies.

The dirham is currently pegged to the dollar, with UAE foreign exchange reserves standing at around $270bn, but following more than a month of war on the country by Iran and the US failing to protect cities like Dubai or Abu Dhabi.

Analysts said an Emirati move away from dollar settlement for energy exports would strike a quiet blow to the global status of the US currency, which rests in large part on the petrodollar system.

UAE Central Bank Governor Khaled Mohamed Balama raised the idea of a currency swap line with US Treasury Secretary Scott Bessent and Treasury and Federal Reserve officials in Washington last week. A formal request has not yet been made.

Indian companies that resumed purchases of Russian oil following the US easing of sanctions pay primarily in dirhams when dealing with Russian state producers and in yuan when dealing with private producers, the Russian publication said, with the Indian government not encouraging the latter.

Russia has been pursuing dedollarisation of its energy trade for several years, with settlements increasingly made in national currencies. Russian producers have generally avoided accepting Indian rupees, in contrast to their willingness to take yuan.

The UAE dollar warning comes as Chinese warships have been dispatched towards the Strait of Hormuz in response to the US seizure of the Iranian vessel Touska. Beijing has defended its shipping through the strait under commercial agreements with Tehran, with defence minister Admiral Dong Jun issuing the sharpest warning to Washington from the Chinese government since the war began.

The UAE has been one of the Gulf states most exposed to regional fallout from the war, with Dubai's position as a financial and logistics hub hit by the disruption of shipping through the Strait of Hormuz and the naval blockade on Iranian ports.