The fact Trump has stated he is thinking about giving the
UAE a currency swap signals a lot of things, but part of why they make it a
currency swap is not many people understand what that actually means. The truth
is it is a loan without technically giving a loan.
The petrodollar system works, because the UAE constantly has
a large amount of oil that leaves their country, exchanged for US dollars, and
those US dollars buy things like food and western goods, and then the remaining
dollars go into their eight sovereign funds which then pump trillions of
dollars into the US economy.
Trump isn't necessarily being altruistic here. What a
currency swap would do is allow for the petrodollar system to still work even
without the inflows of US dollars that used to come in naturally through the
sale of oil. Keep in mind, 90% of the food the residents of the UAE eat has
primarily been flowing from China and Iran ever since this war began. That
continues as the US has clarified they won't stop this food from entering even
with a blockade, but that food can't be bought with US dollars even if we don't
stop it because Iran is stopping any shipments that would have been bought in
USD. In other words, US dollars are abnormally worth less than normal in the
country, because they don't buy as much anymore, but Chinese Yuan are
abnormally valuable, because they do buy things that can't be imported
otherwise.
The fact they are asking for a bailout is a signal they want
to stay with the petrodollar system for now rather than jump ship to China. The
way it would work is the US would take UAE dirham (their version of a dollar).
This is a bit of a formality, because we won't use any of that currency. It is
strengthening the value of that currency despite the fact it is pegged to US
dollars. They then get US dollars that they will use. At some unspecified time
in the future, the US can ask for any number of US dollars the two think is
fair in exchange for the UAE dirham we've been keeping in a vault. Normally
this would work like a loan with more US dollars required compared to the
number of dollars the US previously provided factoring in a calculated interest
rate, but if this is a long conflict that might turn out to be impossible if we
want their oil industry to return to full strength as fast as possible. It is
possible we give their currency back for a very small amount of dollars in
return turning this whole exercise into a gift.
But hidden within this exchange is the thing I see being
missed by most of the Republicans that focus heavily on where Iran will be in
the future. In reality, Iran is pretty inconsequential to the future of the US.
It is near guaranteed at this point they will have a nuclear weapon, and it is
highly likely that they won't use that weapon on the US as they couldn't reach
the US even if they wanted to. If they are rational, they won't use any nuclear
weapons at all, because the US may respond with its own nuclear weapons, and
Iran cannot directly counter-attack the US. Iran using a nuclear weapon likely
would lead to an Iran far more devastated by nuclear warfare than the
devastation they do on others.
As far as oil, we haven't used their oil nearly at all since
2018. In fact, the sanctions shrunk their oil from 85% of their economy to 10%.
The global oil supply is not reliant on anything going on with Iran at all.
Iran is irrelevant. The UAE on the other hand is highly relevant. The reason
why even Trump that gripes about NATO freeloading is talking about bailing them
out is the people around him know how important the UAE is to US dominance.
If you have been reading what I've written for a while, you
will know the world order that created a US system of dominance was established
with the Bretton Woods Agreements after WW2. I won't go into too much detail
other than the fact it allows us to run higher deficits with lower inflation
and there is a periodic natural transfer of wealth into the US year-over-year
through hidden mechanisms built into how the global trade system functions. The
US position since 1979 has been that this global system of trade that rigs the
system in the favor of the US is far more valuable than anything we might want
out of Iran. This is the real reason no one has done what Trump has done in
Iran. This war risked that system that provides US dominance with very little
possible gain in return for the risk.
The key issue here is that currency swap they are asking for
is a band-aid. It is only the first of many dollar infusions it is going to
take to keep the petrodollar system working, and there are more countries than
the UAE that we have to support to keep this system going. The underlying issue
is with or without our blockade, the only way they can buy food right now is to
lean primarily on China. Eventually, we have to either give up on the system
that matters more for the US than Iran, the petrodollar system, and just let
China take over, or we are just going to have to keep shouldering the cost of
keeping multiple countries afloat on the Persian Gulf even as they produce only
a fraction of the oil they used to.
I get the naive view is these countries own their own oil,
and they trade it to countries that aren't the US, and we have our own oil. I
get some may not want to take the time to understand why the Gulf States ever
mattered to the US, but even if you don't want to learn why they matter, their
importance should still be evident if you think about the actions of Bush Sr.
and Trump. Bush invaded Iraq over Kuwait, because of this system. We were not
the primary customer of Kuwait. Trump is sitting here openly voicing his desire
to help UAE out even though we are not the primary customer of the UAE.
We care, because this is our system, and the number one
issue is do we maintain the Gulf States or not. Do we get them back up to
producing or not. Don't focus on whether Iran is facing shut-in wells. Focus on
whether the UAE is facing shut-in wells. It's flashier to talk about Iran where
our bombs are being dropped, but the truth is the real issue here is what
happens to countries like the UAE. If you are an American that cares about
American interests, then you have to realize that historians will measure
whether we won or lost this war based on what happened to countries like the
UAE, not based on what happened to Iran.
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Currency Swaps Explained Currency swaps involve central banks exchanging currencies at spot rates, with an agreement to reverse at predetermined future rates, providing temporary liquidity without being loans or gifts. The US Fed would lend USD to the UAE Central Bank against dirhams (held but unused), reversed later at the same rate—no interest or unequal exchange as claimed. This maintains the dirham peg (3.6725 AED per USD since 1997) amid war-disrupted oil dollar inflows, signaling UAE commitment to dollar stability over yuan shifts.
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