THE UNITED ARAB EMIRATES HAS SIGNIFICANT OIL AND GAS RESERVES, WHICH FORM THE BACKBONE OF THE ECONOMY.
THE COUNTRY HAS SUCCESSFULLY DIVERSIFIED INTO OTHER INDUSTRIES AND COMMERCIAL ACTIVITIES.
BECAUSE OF ITS LOCATION, IT PLAYS A CENTRAL ROLE IN ENERGY POLICY AND INTERNATIONAL TRADE.
1. The United Arab Emirates was destined to become an energy powerhouse.
With its location in one of the most promising areas for the exploitation of hydrocarbon reserves, the United Arab Emirates has the potential to become a magnet for global energy trade. The combination of its location at the center of international trade and its ability to extract hydrocarbons from the ground has made the UAE a major player in global energy markets.
By and large, this potential has not been squandered. It has been repurposed to make cities like Dubai and Abu Dhabi centers for culture, travel, tourism, finance, consulting and professional services. Increasingly, international renewable energy manufacturers are coming to the UAE to set up shop. Tax incentives have played a role, as has geographic location. The fact that the UAE is located near the Indo-Pacific region has also contributed to its economic fortunes.
In some ways, the UAE was the first of many countries to begin the transition from fossil fuels to renewable energy. The country was one of the first to switch from hydrocarbon production to the service sector. This has helped the UAE provide value-added services to the world. This has further diversified the economy and attracted talent to the UAE. In turn, this led to higher energy consumption, which meant that a growing share of energy production had to be recycled back into the domestic economy. This share could not be exported abroad. It was in the UAE’s interest to replace the share used for electricity generation with renewable energy sources. These renewable energy sources are relatively abundant in the UAE, especially solar energy.
2. The UAE is growing by leaps and bounds. Diversification into renewable energies.
Ever since hydrocarbon resources were found in the Arabian Peninsula, there has been a flurry of economic development. The UAE has been fully immersed in this trend. Adapting to modernity has been a steady process and has intensified over time. As development took off, foreign investment flooded the UAE. This was new. It was not just investment from the UAE that determined the fortunes of Dubai and Abu Dhabi. It was an overall comprehensive process through which Dubai established itself as a hub primar inter parus in the Middle East. The airline business is a case in point. By comparison, Saudi Arabia probably faces a more difficult path to economic diversification. It must be said that Saudi Arabia has unique opportunities for further growth in the services sector.
Nevertheless, throughout all this time, the oil and gas sector has been the backbone for all this economic development, which has always been at the heart of Dubai’s history. The service sector, with all its extravagant offerings, has only become possible because energy costs have been out of the picture. A great many companies have been subsidized directly or indirectly by energy revenues or funds. This is not to say that the achievements are any less significant, it just adds another dimension to the story or tapestry of the UAE economy.
What will happen if oil prices rise in the UAE? What are the likely effects of imposing taxes. They can ripple through the economy and affect people’s consumption. This may be particularly relevant if income taxes are introduced in the future. This could drive foreign workers back to their home countries. These are issues to think about.
3. The coronavirus has affected oil exports and business within the United Arab Emirates.
We see a probable foreshadowing of Dubai’s future with the coronavirus. Air traffic has been severely restricted. This has affected tourism and the service sector in the UAE. The UAE wanted to establish itself as a cultural center to expand its offerings to tourists. The coronavirus has undermined the prospects of Dubai as an international hub for traffic between East and West.
It may be worth reflecting on the long-term economic prospects of Dubai and Abu Dhabi. Nothing is set in stone, but the coronavirus exposes the vulnerabilities of the UAE economy. In its own unique way, the coronavirus has affected both oil revenues and tourism revenues. It has affected both the primary sector and the service sector. In fact, it has affected the entire economy. The likely impact will be falling real estate prices, lower prices for rental properties, and fewer real estate developments overall.
Diversification of the UAE economy may entail greater investment in startups and mid-sized companies to realize indigenous innovations that maximize the UAE’s economic potential in world markets. This is a difficult sector of the economy as profit margins are lower and technical challenges can be daunting for companies. But innovation is key to achieving more diversified growth and justifying higher prices.
Many thanks for the shared interest in the energy world!