US Eyes Dollar Lifeline for Gulf as Oil Shock Squeezes Cash

Treasury Secretary Scott Bessent publicly defended plans on Friday to grant permanent dollar swap lines to Gulf and Asian allies. He framed the expansion as a counterweight to alternative payment systems eroding the dollar’s reserve status.

In a detailed public statement, Bessent said the discussions reflect routine Treasury diplomacy with partners holding large dollar reserves. He argued that extending the Federal Reserve’s swap network would reinforce dollar liquidity abroad and generate interest income for US taxpayers.

Why Gulf and Asian Allies Want Dollar Swap Lines Now

The timing reflects pressure from the Iran conflict. Meanwhile, strained oil revenues have tightened dollar funding for Gulf energy exporters that price shipments in USD.

UAE officials reportedly raised the idea of a swap line with Bessent and Fed contacts last week. President Donald Trump signaled on April 21 that a UAE facility was under active review.

Disruptions around the Strait of Hormuz have squeezed dollar liquidity for Gulf banks. In turn, that pressure is pushing allies toward the Fed for short-term support.

Swap Lines as a Shield Against Payment Alternatives

Bessent tied the proposal to countering rival payment networks. He pointed to BRICS-led initiatives and yuan-settled energy trade.

New permanent lines would create dollar funding centers in Dubai, Abu Dhabi, and select Asian hubs.

That shift expands well beyond the Fed’s five existing partners. Those are Canada, the UK, the Eurozone, Japan, and Switzerland.

The move presents as low risk because Gulf states have stronger balance sheets than several current swap partners. However, skeptics may argue that the plan looks like a bailout and signals dollar weakness rather than strength.

The Fed’s formal extension of its standing facilities could depend on the coming governance decisions and political appetite.

If approved, the expansion would mark the largest change to the permanent swap network in over a decade.

Meanwhile, the effort parallels Bessent’s broader bet on dollar stablecoins and capital market reforms to preserve USD dominance.