UAE Says It Is Discussing Currency Swap Line With U.S. After Leaving OPEC

A man stands at the UAE’s Fujairah oil terminal during the opening of a very large crude carrier berth facility on Sept. 21, 2016. [Photo=Yonhap]

The United Arab Emirates said it is discussing opening a currency swap line with the United States, following its exit from the Organization of the Petroleum Exporting Countries, Yonhap News Agency reported Monday.

UAE Minister of State for Foreign Trade Thani Al Zeyoudi said the talks are part of discussions with several countries and would place the UAE in what he called an “elite group” that operates under U.S. swap policy. He made the remarks at an event in Abu Dhabi, according to Yonhap.

“The United States currently has currency swaps with only five countries,” Al Zeyoudi said. He added that joining that group would mean bilateral transactions, trade and investment have reached a level where a swap line is essential. He did not disclose the size of any potential swap line or a timeline for an agreement.

The U.S. central bank, the Federal Reserve, maintains permanent standing swap lines with five major central banks: the European Central Bank and the central banks of Canada, Japan, the United Kingdom and Switzerland.

The UAE sees a swap line with the United States as a possible financial backstop against a foreign-exchange crisis after oil exports — a key source of hard-currency earnings — were hit by the closure of the Strait of Hormuz amid war in the Middle East.

The move is also being viewed in connection with the UAE’s departure from OPEC on May 1. By leaving, the UAE signaled an independent course away from the Saudi-led order in global oil markets, increasing the need to draw closer to the U.S. government, which has been at odds with OPEC.

Saudi Arabia, while a U.S. ally, has sought to reduce reliance on the dollar, including exploring yuan-denominated oil payments, as it tries to avoid ceding dominance in oil markets to the United States. For Washington, a swap line with a major Middle Eastern oil producer could help reinforce the “petrodollar” at a time when its durability is being questioned.

If the UAE establishes a swap line with the United States, the relationship could extend beyond finance to closer coordination on security and military policy in response to Iran, a persistent threat, further widening distance between the UAE and Saudi Arabia.

* This article has been translated by AI.

Lee nakyeong