UAE Central Bank warns the U.S. about "Dollar Rescue": If unable to provide it, switch to selling oil in RMB, as the petrodollar faces its most direct challenge

UAE Central Bank Governor Khaled Mohamed Balama personally visited Washington during the IMF Spring Meetings to meet with U.S. Treasury Secretary Scott Bessent and Federal Reserve officials, proposing the establishment of a currency swap mechanism between the dollar and the dirham.

This is not diplomatic rhetoric; it’s a clear signal. An official from the UAE stated plainly: “It was the United States that triggered the Iran conflict, dragging us into this destructive confrontation.” If dollar liquidity tightens, they reserve the option to settle oil exports in renminbi or other currencies.

Behind the currency swap: Dirham peg pressure has reached a critical point

The dirham has long maintained a fixed exchange rate pegged to the dollar, with ample dollar foreign exchange reserves being key to maintaining stability. In the past, this was naturally supplemented by dollar income from oil exports, but two simultaneous gaps have now opened.

The first gap: energy infrastructure has been damaged, drastically reducing output. The second gap: the Hormuz Strait has been blocked, interrupting oil export routes and cutting off dollar-denominated revenue. Together, these factors nearly halt the mechanism that replenishes foreign reserves.

The logic behind the currency swap agreement is simple: the Federal Reserve provides cheap dollars when needed, the UAE Central Bank exchanges dirhams to stabilize the exchange rate, and after the crisis, they swap back. Similar mechanisms have been provided by the U.S. to several allies, including South Korea, Singapore, and Australia. The UAE officials describe this proposal as a “preventive measure,” not yet formally submitted, but the signal is far more significant than technical details.

The real chip: China is now the largest buyer, with renminbi settlement surpassing 41%

The UAE is not bluffing. The data is clear: since March 2026, the proportion of oil sold to China settled in renminbi has exceeded 41%, with Saudi Arabia reaching 45%. China has already replaced Europe and the U.S. as the UAE’s largest oil buyer.

In other words, the infrastructure for renminbi settlement, trade relationships, and buyer demand are all in place. Only a political decision remains.

UAE President Mohammed bin Zayed has been more direct: he does not rule out settling oil in renminbi and will reassess the necessity of U.S. military bases within the country. One move simultaneously touches two red lines: the petrodollar and military alliances.

“The U.S. started the war, but we are the ones paying the bill”

The core argument from the UAE is: this conflict with Iran was initiated by the U.S., but the Gulf countries bear the impact. Energy facilities destroyed, export routes blocked, dollar income cut off—UAE is forced to use its reserves to hedge against a war it never chose.

Within this framework, requesting currency swaps from the U.S. is not just a financial matter but a political claim. “You dragged us in, so you have an obligation to provide us with insurance.”

This narrative is not unique to the Gulf region. Simultaneously, Qatar has also been reported to be reassessing the long-term necessity of its U.S. military bases. The collective revaluation of Middle Eastern allies is happening in parallel.

The trust crisis of petrodollars: the first time allies are used as leverage

The petrodollar system has operated for over half a century, based on the core logic: Gulf oil producers price their exports in dollars in exchange for U.S. security guarantees. This arrangement has made the dollar indispensable in global energy transactions.

But this time is different. The UAE is not quietly complaining but openly raising the possibility of switching to renminbi in front of the Treasury Secretary at the IMF, using it as a bargaining chip. This is the first time since the establishment of the petrodollar system that a core ally has openly threatened to challenge it.

The 41% renminbi settlement rate, the reality of Hormuz Strait blockade, and the deeply integrated trade relationship between the UAE and China mean this chip is no longer just talk. The challenge to dollar hegemony is no longer from geopolitical rivals but from its closest energy allies negotiating their terms.