The United Arab Emirates is experiencing a "new normal" as its post-pandemic economic boom is tested by ongoing regional conflict. Despite the return of a September rush to offices and schools, the resilience of the UAE's economy, which heavily relies on non-nationals making up around 10.4 million of its 11.8 million population, is under scrutiny. While sectors like financial services and government-linked activities are partially offsetting losses, retail, transport, and tourism are particularly affected, with international visitor inflows not expected to return to 2025 levels until 2028. The Economist Intelligence Unit warned in July of investor wariness due to the latent risk of regional conflict reigniting, and analysts predict a drop in foreign direct investment and a GDP fall for the first time since the COVID-19 pandemic.
Challenges include rising import costs and fuel prices due to disruptions in the Strait of Hormuz, with gasoline prices climbing about 60% since the war began. Airport traffic at Dubai International Airport fell by almost a third in the first six months of the year, and hotel occupancy in Dubai dropped to around 64% in August from 76% a year earlier. Real estate prices have also fallen, and employers are reportedly planning job cuts rather than new hires. Despite these pressures, the UAE Central Bank expects GDP growth to slow to 1.7% this year but forecasts a rebound to about 7% in 2027. Inflation is a concern, with the consumer price index growth anticipated to accelerate to 3.2% in 2026 before easing to 2.3% in 2027.
The UAE has implemented measures to support its economy, including a $680 million package for affected sectors, exempting hotels and restaurants from municipality costs, and delaying licensing fees. Abu Dhabi’s $2 trillion in sovereign wealth and Dubai's private capital continue to underpin relative strength. Dubai International Financial Centre now has over 10,000 active companies, and Abu Dhabi Global Market issued almost 2,000 licenses in the first half of the year. The country's population continues to grow, with Dubai adding around 200,000 residents this year. Oil exports have reached pre-war levels, and the UAE is developing a "Zero Hormuz" strategy to bypass the waterway and ensure trade continuity. Leaders are also actively engaging in diplomatic efforts, with Abu Dhabi Crown Prince Sheikh Khaled bin Mohamed Al Nahyan meeting Iranian President Masoud Pezeshkian to discuss resolving the Strait of Hormuz standoff.
Despite the current challenges, many analysts, including Robert Mogielnicki of Polisphere Advisory and Adam Holdstock of Oxford Economics, expect the UAE to recover in the future, assuming a resolution to the conflict. They cite the UAE's strong fundamentals, business-friendly regulations, position as a global aviation hub, and its track record of attracting capital and talent as key factors for long-term recovery. The perception among businesses and investors is that the current situation is temporary, though the realization of a prolonged state of "neither war nor peace" is still sinking in for some.
