The United Arab Emirates will abandon the U.S. dollar for local currencies in new oil transactions.
This strategic shift aligns with the broader ambitions of the BRICS economic alliance, of which the UAE is a new member. It marks a departure from the long-established dollar dominance in the global oil market.
Over the past year, the BRICS bloc has witnessed significant growth, leading to an expansion effort announced at the August 2023 summit. Apart from the UAE, five other countries have been added to the bloc — Saudi Arabia, Egypt, Ethiopia, Iran and Argentina.
By joining the BRICS, the UAE seeks to solidify its economic ties with China and India, its two largest trading partners. Bilateral trade between the UAE and China surged by 28 percent in 2022, reaching $64 billion. Similarly, the UAE and India experienced robust bilateral trade, reaching $84.5 billion between April 2022 and March 2023.
This strategic move aligns with the UAE's ambitious economic goal of doubling its GDP to over $800 billion by the end of 2023. To achieve this objective, the UAE is prioritizing the pursuit of bilateral trade deals and partnerships, according to Abdullah Bin Touq Al Marri, the country's Economy Minister.
The country is also actively pursuing partnerships that could diversify its oil trading relationships. It plans to leverage the upcoming COP28 Summit to identify potential deals and establish new connections with prospective oil trading partners.
The UAE has reportedly identified 15 potential partners for these oil deals, including China, Russia and Egypt. These three countries are members of the BRICS economic alliance, which has been actively pursuing de-dollarization initiatives. China and Russia, in particular, have taken concrete steps to reduce their reliance on the U.S. dollar in international trade.
Small steps toward de-dollarization
Though the UAE has yet to issue official pronouncements regarding de-dollarization, the country has taken prior steps in this direction. According to Kristian Alexander and Gina Bou Serhal from Trends Research and Advisory in Dubai, the UAE has long adhered to a multi-alignment foreign policy approach.
In February 2023, Indian oil refiners began using the UAE's dirham to settle payments for Russian crude oil imports.
Four months later, the UAE offloaded $4 billion worth of U.S. Treasury bonds in June 2023, its second consecutive month of divesting from U.S. government debt. This reduction brought the UAE's holdings of U.S. Treasuries to $65.2 billion, down from $69 billion in May 2023, as per the U.S. Treasury's monthly report.
In August, UAE showed willingness to explore alternative currency arrangements for its oil exports when Indian Oil Corp., India's leading petroleum refiner, used the rupee instead of the U.S. dollar. This market was the first large oil trade settled outside the greenback globally.
This transaction comes after a significant gold trade between the UAE and India, in which 25 kilograms of gold were exchanged for approximately 128.4 million rupees ($1.54 million), as reported by Reuters.
The two countries also signed two new agreements. The first agreement establishes a framework for settling trade transactions in their respective local currencies, eliminating the need for costly dollar conversions. The second agreement sets a real-time payment link, facilitating seamless cross-border money transfers.
According to the Reserve Bank of India in a recent statement, these agreements will pave the way for "seamless cross-border transactions and payments, and foster greater economic cooperation."