“Dollar Dome”… A UAE Effort to Counter Hormuz Pressures and War

For the first time since the outbreak of the war with Iran, the administration of U.S. President Donald Trump is openly discussing the possibility of providing “financial assistance” to the United Arab Emirates. Trump told CNBC that the United States is considering a “currency swap” with Abu Dhabi to counter economic pressures resulting from the war and the disruption of the Strait of Hormuz, noting that this option is “under consideration.”

Trump’s statement came hours after his advisers announced Washington’s readiness to intervene if necessary. Kevin Hassett, Director of the National Economic Council, expressed the administration’s willingness to provide support “if the Strait of Hormuz remains closed and continues to harm the UAE economy,” describing Abu Dhabi as a “highly valuable ally” in confronting Iran.

The Wall Street Journal had reported that UAE Central Bank Governor Khaled Mohamed Balama raised the issue in meetings with U.S. Treasury Secretary Scott Bessent last week in Washington, requesting a “precautionary financial umbrella” that could take the form of a dollar “swap line,” according to U.S. officials.

Experts believe that proposing a dollar-based safety net does not reflect financial weakness as much as it constitutes a preventive step to ensure liquidity under exceptional circumstances.

“This is a precautionary measure to enhance stability, not a request for a bailout,” said Emirati economist Hussein Al-Qamzi to Alhurra.

The “swap line” under discussion is not a loan in the traditional sense, but rather an arrangement that allows a central bank to obtain dollars from the Federal Reserve in exchange for its local currency. The Federal Reserve describes this mechanism as a tool to ease pressure on participating countries and support global financial stability.

The Federal Reserve maintains permanent swap agreements with only five major monetary institutions: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. Proposing a similar arrangement with the UAE represents a notable development—especially since even at the height of the COVID-19 crisis, when the Fed temporarily expanded this tool to include nine additional central banks, none were from the Arab world.

Dubai stock market (Reuters).

Testing the Dirham and the Dollar

The discussion of U.S. “financial assistance” to Abu Dhabi comes at a highly sensitive moment for the UAE and other Gulf states, which have been subjected to Iranian missile and drone attacks, leading to a total or partial disruption of oil production and export operations.

The situation has worsened with disruptions to shipping and oil tanker transit through the Strait of Hormuz, through which about 20 million barrels of oil passed daily—roughly one-fifth of global consumption before the war. Shipping traffic through the strait remains largely halted, according to Reuters on Tuesday.

Al-Qamzi said that “the disruption of the strait does not mean the dollar stops immediately, but it puts pressure on its channels,” such as trade and energy revenues, import financing, shipping and insurance costs, as well as investor confidence and capital flows into the UAE economy.

For his part, financial markets economist Amr Zakaria told Alhurra that “low levels of borrowing give the UAE economy greater flexibility in dealing with such shocks, because available resources can be directed toward supporting economic activity and operating investments that generate much higher returns.”

The UAE dirham has been pegged to the dollar since 1997, and market confidence in the currency depends largely on the ability of monetary authorities to provide dollars when needed under all conditions.

Official UAE data indicate that Abu Dhabi remains in a relatively strong financial position. The central bank announced in March that its foreign currency reserves exceeded one trillion dirhams, while banks hold liquidity and assets approaching 920 billion dirhams, with liquidity coverage exceeding 146 percent.

Smoke rises near Dubai International Airport following a drone attack targeting a fuel tank (March 16, 2026 – Reuters).

Will Confidence Shake?

The UAE has built a large part of its economic model on its image as a safe hub for business and capital in a volatile region.

This model is no longer based solely on oil. According to the UAE Central Bank, non-oil foreign trade reached 2.53 trillion dirhams in the first nine months of 2025, reflecting the diversification of sources generating foreign currency inflows.

However, this very diversification makes it more sensitive to disruptions affecting shipping, insurance, and aviation—sectors directly linked to trade, services, and capital flows.

Reports have indicated that wealthy individuals have begun reconsidering where to base their assets, with some shifting toward competing Asian financial centers. Meanwhile, UAE stock market movements have shown clear sensitivity to political developments—rising with news of de-escalation and falling when talks falter.

Nevertheless, Amr Zakaria stressed that “proactive moves to build liquidity safety nets are not necessarily interpreted as a sign of weakness; rather, markets may see them as a reassurance signal.” He added: “Investors prefer systems that act before a crisis, not after it, and coordination with the issuer of the most important currency in the global financial system may alleviate concerns that liquidity could become a pressure point under exceptional circumstances.”

The UAE may not remain the only Gulf case in this context. Most countries in the region operate within a monetary and financial system closely tied to the dollar. This means that any prolonged pressure on trade, energy, and confidence could, according to observers, push other states to seek similar arrangements to enhance liquidity and contain market anxiety.

The article is a translation of the original Arabic.