Summary of Key Points
The US-Iran war has shattered the UAE's myth of being an "oasis of security in the Middle East," impacting sectors such as shipping, transit trade, consumption, and real estate. However, the country's resilience has exceeded expectations. Long-term advantages, including a low-tax system, free capital movement, and a mature financial network, remain intact. The UAE is likely to experience a division in its economic trajectory: low-value-added industries will face pressure, while sectors like wealth management, energy, and AI may see growth. The country's value has not been lost; rather, its value structure has changed, transforming it from an "absolutely safe haven for arbitrage" into a "relatively secure global capital hub."
Detailed Analysis
1. Security: From "Absolute Safety" to "Relatively Reliable"
Dubai's success in the past relied on its position as a stable hub amidst regional turmoil. Despite constant conflicts in the Middle East, Dubai has managed to convince investors that it would never become a battlefield. This sense of security supported high housing prices, population growth, and the establishment of corporate headquarters. After the war, Iran began to view the UAE as a strategic partner for the US and Israel, prompting investors to realize that Dubai is also within missile range, ending the myth of absolute safety.
However, the UAE has not remained passive. Abu Dhabi has strengthened its economic and trade ties with Iran (given the large number of Iranian businessmen in Dubai), using incentives to reduce the likelihood of attacks—since attacking the UAE would also harm their own businesses. Today, the UAE remains one of the safest and most well-governed countries in the region, but the premium associated with "zero geopolitical risk" has faded, making it "relatively secure." For example, work visas now require a review of background; those who leave and return may face rejection, reflecting a balance between inclusiveness and security.
2. Transit Trade: Costs Have Increased, But African Small Businesses Still Rely on It
Dubai's economy is heavily dependent on transit trade. Chinese goods first arrive in Dubai before being sold to customers in Africa and South Asia, allowing businesses to save on logistics and time (e.g., avoiding the need to visit multiple suppliers in Yiwu). After the war, container prices to Dubai have skyrocketed, eroding the profits of low-value-added products. Some African clients have started purchasing directly from China. However, this is not a fatal blow, as many small African businesses lack the capacity to manage their own supply chains. Dubai's established infrastructure (ports, warehouses, trade finance) is difficult to replace quickly. The UAE must evolve to offer higher-value-added services such as supply chain financing and regional logistics management to maintain its competitive edge.
3. Consumption: Down 30%-50%, but Population Has Not Driven Out
Sales in many industries have declined by 30%-50% this year, especially in sectors like construction materials and auto parts. This is due to two factors: high-net-worth families temporarily moving their relatives to London or Singapore for safety; and consumers being cautious about spending large amounts due to the uncertainty of the war (fear of losing orders or experiencing housing price drops). The claim that 1 million people have left Dubai is an exaggeration—with a total population of only 4 million, such a significant departure would disrupt the city. Additionally, many people have lived in Dubai for over a decade and are tied to their jobs, properties, and children's schools, making it difficult to move immediately. As long as the war does not persist for two to three years (which could lead to permanent relocation), consumers will return, and the decline in sales is more of a temporary adjustment than a fundamental shift.
4. Real Estate: No Sharp Drop, but the Era of Easy Profit-making Is Over
Initially, there were rumors that housing prices had dropped by 30% due to the war, but this mainly affected real estate stocks in the capital market. Physical properties remained unsold at high prices, with buyers demanding discounts related to the conflict. Now, the market is becoming more resilient, as people accept the war as a long-term risk. In the future, projects located on outskirts or in less desirable areas will struggle to sell, while properties in city centers, coastal areas, and those suitable for long-term rentals will be more stable. Abu Dhabi, with its financial resources and government support, is likely to attract more attention.
5. The Value of the UAE's System: A "Global Capital Hub" Unshaken by War
While businesses operating in the physical economy face challenges, those in wealth management and family offices are less pessimistic. This is because major countries are tightening tax regulations (e.g., CRS information exchanges), creating a demand for low-tax environments with free capital movement and mature financial systems. The UAE offers such conditions: no personal income tax, low corporate taxes, a stable currency (linked to the US dollar), and English-language proficiency that facilitates business operations across Asia, Europe, and Africa. These factors are the result of decades of development and are not easily affected by war. For example, international financial companies continue to set up offices in Dubai, as it remains an attractive option for global entrepreneurs managing cross-regional assets, alongside Singapore and Switzerland.
Conclusion
The UAE has indeed been impacted by the war, but it has not collapsed. The war has changed the perceived risks associated with doing business there, not its fundamental value. In the future, the country will see a divergence in economic activities, with low-value-added industries under pressure and high-value-added sectors and sovereign capital-driven industries growing. We should neither be overly pessimistic nor blindly optimistic. Instead, we need to shift our perspective from focusing on security-based arbitrage to recognizing the UAE's potential for value creation as its core competitive strength.