The White House has discussed offering the United Arab Emirates a financial lifeline as the US war with Iran wreaks havoc on the Gulf state’s economy, a White House official told CNBC.
The UAE has not formally requested a currency swap line, and plans are not currently being drawn up, said the official, speaking on condition of anonymity regarding non-public plans. Still, discussions are going on within the administration, the person said. Such a move would provide dollar liquidity to the oil-rich United Arab Emirates, but could be politically vulnerable to the administration as U.S. consumers grapple with higher prices domestically.
The US war with Iran has caused huge losses to the UAE and other Persian Gulf countries. Tehran fired a large number of missiles at America’s regional allies, causing damage to economic infrastructure. Iran’s closure of the Strait of Hormuz has also halted much of the oil exports on which the UAE depends for cash flow.
The UAE is a particularly close ally of the Trump administration, and has worked to make proposals to Washington since Trump returned to the White House. The country had committed to invest more than $1 trillion in the US last year. The Gulf country’s leader is also reportedly linked to President Donald Trump’s family business.
When Trump was asked directly on CNBC’s “Squawk Box” on Tuesday whether a currency swap was being considered, he said he was willing to assist the UAE.
The President said, “If I could help them I would.” “It’s been a good country. It’s been a good ally of ours.”
However, the potential currency swap line carries political risks for Trump, as US voters could see it as a bailout of a foreign country – and a rich country – while US consumers are swallowing the higher prices.
The White House official said Trump sees the UAE as a key US ally and is ready to help them, but cautioned that the swap is still “something we are considering.”
On Tuesday, a key Republican lawmaker appeared cautiously supportive of a potential swap.
“They are such strong allies in the Middle East, I think we should look at what needs to be done to help them through this difficult time,” Senator Steve Daines, R-Mont., who sits on the Senate Finance and Foreign Relations committees, said in a brief interview. “(Treasury) Secretary Besant, he is good at many things, from his experience before becoming Secretary the one thing he was really good at was currency exchange.”
“I think the secretary is moving in this direction and I support her in that,” he said.
However, Democrats are deeply skeptical of any deal the administration makes with the UAE.
Rep. Gregory Meeks, D-N.Y., the top Democrat on the House Foreign Affairs Committee. Said, “Whenever I’ve seen the president do anything else with the UAE, it’s for the benefit of the Trump family.” “I understand that the UAE has suffered a lot in this regard, and I want to make sure that we help our friends and allies in the region, but I really have to scrutinize that deal.”
Even though the Administration is prepared to provide assistance, the final decision on whether to provide swap lines rests with the Federal Reserve.
Swap lines have historically been limited to major central banks and systemically important markets, so offering one to the UAE would represent an unusual expansion of scope.
The possibility of a swap line between the US and the UAE first emerged on the sidelines of the World Bank and IMF meeting in Washington last week, when US Treasury officials called on some Gulf allies to ask what they needed to rebuild their economies after the Iran war ended, the official said. The UAE later sought a possible currency swap, but did not make a formal request for one. wall street journal First reported.
The Journal also reported that the UAE has warned that if it runs out of dollars it may have to use the Chinese yuan for oil sales and other transactions, threatening the dollar’s dominance over oil markets.
The UAE said in a statement from its embassy in the US Posted on xDenied that it needed a bailout.
“Any suggestion that the UAE needs external financial assistance misrepresents the facts,” the statement said. “The UAE and the United States will continue to prosper together for decades to come, not because one is dependent on the other for support, but because both benefit from one of the world’s most important economic partnerships.”
— CNBC’s Jeff Cox Contributed to this report.