UAE: Economic recovery despite the Iran war?

The United Arab Emirates (UAE) has introduced economic incentives aimed at attracting domestic residents to travel within the country amid ongoing regional tensions linked to the conflict with Iran. The government announced in July a program offering benefits worth approximately $800 to citizens who bring visitors into the UAE between July and October. This initiative comes as many foreign governments continue to advise their citizens against traveling to the UAE due to security concerns arising from the escalating situation involving Iran. The conflict began in late February when Israel and the United States launched attacks on Iran, prompting Tehran to retaliate by targeting U.S. allies in the region, including the UAE. As a result, hotel occupancy rates in Dubai plummeted sharply, dropping from 80 percent to around 10 percent. Some hotels have since closed early due to planned renovations, while others are offering five-star resorts to residents at half price to encourage local stays, known as "staycations." The impact on expatriates living in the UAE is significant. Of the roughly 11.8 million people residing in the UAE, up to 10.4 million are non-citizens ranging from wealthy individuals to migrant workers who send part of their earnings back home. Many affluent residents left the country after Iranian missiles passed over them, fearing for their safety. To encourage their return, the UAE is considering more flexible rules regarding tax residency, allowing residents to stay abroad longer without losing their tax status in the UAE. Despite these measures, there are signs of economic strain. The UAE unveiled a relief package totaling $680 million (approximately €587 million), yet analysts predict a decline in foreign direct investment and gross domestic product, marking the first such drop since the onset of the COVID-19 pandemic. The Economist Intelligence Unit warned on July 31 that the risk of renewed regional conflict could influence investor caution through the end of the year. Employers have announced layoffs and hiring freezes, while inflation driven partly by the blockage of the Strait of Hormuz has pushed up prices for raw materials and imported goods. Real estate prices have also declined. However, the UAE’s authoritarian government does not regularly publish updated financial data, leading to limited transparency about the true state of its economy. International assessments of the UAE's economic situation vary widely. Recently, the Central Bank of the Emirates sought a currency swap facility with the United States, which allows direct access to each other's currencies without going through foreign exchange markets. U.S. Treasury Secretary Scott Bessent stated that the discussions were intended to support the UAE's efforts to manage the consequences of the war. However, UAE Ambassador to the U.S., Yousef Al Otaiba, disputed this, stating on Facebook that claims the UAE needed external financial assistance misunderstood the facts, emphasizing that the UAE possesses one of the world's most financially resilient economies. In May, Abdul Aziz al-Ghurair, chairman of the UAE Banking Association, assured there were no fears of capital flight or dollar shortages. A unnamed source told the Financial Times that the goal was to build confidence and signal that the UAE belongs among the world's most trusted economies. Experts suggest that the talks on the currency swap facility should be viewed more as precautionary insurance rather than an indication of immediate distress. According to Adam Holdstock of Oxford Economics, the move reflects a strategic approach to ensure stability rather than a sign of acute need.