As the Iran war shaking the Middle East enters its seventh week, the United Arab Emirates (UAE), a leading wealthy nation in the region boasting the world's No. 6 oil reserves and the No. 3 sovereign wealth funds, has opened talks with the United States to establish a currency swap.
This is a symbolic case showing that even wealthy countries with massive tangible and intangible assets, in an extreme crisis like war, find it far more urgent to secure immediately deployable dollar liquidity than to rely on the size of assets recorded on their books.
According to the Wall Street Journal (WSJ) on the 19th local time, Khaled Mohamed Balama, Governor of the UAE Central Bank, visited Washington last week and held a series of meetings with senior officials from the Federal Reserve (Fed) and the Treasury, including U.S. Treasury Secretary Scott Bessent, to explore in depth the idea of signing a currency swap. Senior UAE officials are said to have explained to the U.S. side that although they have so far avoided fatal economic damage from the Iran war, a financial lifeline could be absolutely necessary depending on how the situation unfolds.
A financial lifeline refers to the last-resort measure that prevents insolvency in a severe economic crisis or cash crunch. For individuals, low-credit loans are a representative tool, and for corporations, issuing convertible bonds (CB) is typical. Between countries, currency swaps are mainly used. A currency swap is a kind of overdraft account in which, in emergencies such as wartime or a financial crisis, two countries deposit their own currency and borrow the counterparty's currency at an exchange rate agreed upon in advance. In financial markets, if the UAE signs a currency swap with the United States, it serves as a safety signal that it can swiftly draw on U.S. dollars, the key currency and a relatively safe asset, whenever needed.
The UAE's foreign exchange reserves alone stand at $270 billion (about 397 trillion won), the second largest in the Middle East after Saudi Arabia. On top of that, the asset size of its sovereign wealth funds is also among the world's largest. According to Bloomberg, the Abu Dhabi Investment Authority (ADIA), estimated at around $1 trillion, and Mubadala, which manages $385 billion in assets, together rank third in total size after the United States and China. However, sovereign wealth fund money is mostly long-term investment assets tied up in overseas stocks and bonds, real estate, and infrastructure.
When war breaks out, even wealthy countries like the UAE urgently need U.S. dollar cash that can be deployed immediately for defending the exchange rate, paying import bills, and repaying short-term external debt. The long-term investment assets held by sovereign wealth funds are physically difficult to sell and convert into cash right away when a crisis such as the Iran war occurs. It is the same logic as an individual owning tens of billions of won in real estate and stocks but facing a technical default if a huge amount of loan principal and interest payments come due this month. In a crisis, immediately payable cash dollars play the role of an economic lifeline more than the total size of assets.
Since the Iran war broke out on Feb. 28, Iranian airstrikes have simultaneously hit energy production infrastructure and global logistics networks. Reem Al Hashimy, UAE Minister of State for International Cooperation, appeared on ABC on the 19th and said, "Since armed clashes began between the United States and Israel and Iran, more than 2,800 missiles and drone attacks have rained down on our territory."
Energy facilities are a national core engine that had earned the UAE stable dollars. Even if crude oil is produced normally, if the ships and marine insurance and port facilities that carry it safely grind to a halt, the channel that turns oil into money is blocked. According to Reuters, as of the 19th, crude oil from the Gulf amounting to 13 million barrels a day and 300 million cubic meters of liquefied natural gas (LNG) were stuck at sea.
The UAE's distinctive economic structure is also cited as a key factor intensifying short-term liquidity pressure. The UAE, even among Gulf oil producers, has positioned itself as a global finance and logistics hub where capital from around the world gathers and disperses. Dubai and Abu Dhabi have solidified their status as centers of global economic and cultural transactions. However, if geopolitical anxiety mounts over the long term, investor sentiment in sectors most sensitive to external shocks—such as tourism, aviation, real estate, and financial transactions—can freeze in an instant. Experts said that foreign mega capital and global corporate investors are also likely to scramble to secure safe-haven dollars and attempt to exit the UAE.
S&P Global, a financial information company, warned in a recent analysis that if the Middle East war drags on, there is a risk that deposits of up to $307 billion (about 451 trillion won) could leave the entire banking sector of the Gulf Cooperation Council (GCC) member states. The UAE operates a peg regime that fixes the value of its domestic currency, the dirham, to the U.S. dollar. Experts said that to maintain market confidence and prevent bank runs, the UAE Central Bank needs to secure access to dollars.