As the UAE prepares to welcome the world at its Dubai Expo 2020, its rulers will also be looking to enhance ties with new allies in the new year, as they seek diversification beyond economics.
Known for the vast oil wealth of Abu Dhabi and the dynamic markets of Dubai – along with an interventionist overseas diplomatic and military role – the UAE has seen all three of these features come under pressure and face correction in the past year.
“There is a diversification of the UAE’s relationships going on,” said Jonathan Fulton, Assistant Professor of Political Science at Zayed University in Abu Dhabi.
While the Gulf nation has long been in lockstep with the United States, it is increasingly looking East to balance its global position.
“China is seen as another potential partner, while Russian President Putin, too, has been in town, and Indian Prime Minister Modi,” said Fulton.
The UAE’s relationship with China has been booming in recent years. Major investments have been made by the People’s Republic in Abu Dhabi’s Port Khalifa – a new stop on Beijing’s Belt and Road Initiative – while veteran Chinese investors are keeping up their activities in Dubai. China is a major destination for Emirati oil.
President Putin’s state visit to Abu Dhabi in October also saw a great deal of fanfare, along with a range of aviation and energy deals signed, while Prime Minister Modi’s visit in August recognized India’s growing economic and security role in the Indian Ocean region.
Television and Twitter ads celebrating the UAE’s 48th national day reminded Emiratis in late 2019 that their country has come a long way since independence from Britain in 1971.
Rising from only a few small towns to a string of global cities, the UAE has much to be proud of as it enters the second decade of the 21st century.
Yet, the last few years have also been bumpy ones for the country – both in terms of its domestic economy and regional policy.
Since the Arab Spring, the country had intervened much more directly in the region, seeing Iran, revolutionary forces and the Muslim Brotherhood as major threats.
The UAE supported various Islamist rebel groups in Syria against Iran-allied Damascus, Egypt’s strongman President Abdel Fatah El-Sisi and General Khalifa Haftar in Libya.
It has also intervened alongside Saudi Arabia with troops on the ground in Yemen, joined other GCC states to suppress a revolt in Bahrain and has been a staunch supporter of the blockade against Qatar.
In 2016, the UAE also welcomed the new US president, “seen as on the same page on Iran and other issues,” according to Fulton.
Yet by 2019, most of the UAE’s overseas ventures had become problematic and optimism over Trump appears to have been misplaced. In Syria, pro-regime forces inched ever closer to finishing off the rebels, while in Yemen, after four years of war, there was still no sign of victory.
The blockade of Qatar is now in its third year with no sign of Doha crumbling, but instead a stronger presence by Qatar and its ally, Turkey, around the region.
Iran, meanwhile, has continued to increase its regional influence, in Syria and Iraq in particular, while also demonstrating its ability to hurt Gulf and global economies via indirect and allegedly direct attacks on oil tankers and storage facilities.
The UAE thus started some significant policy shifts.
At the start of 2019, it re-opened its embassy in Damascus, while in Yemen, it began a draw-down of forces. On Qatar, the UAE has not joined Saudi Arabia in unofficial talks to end the crisis, but it has also not moved to block them. And November saw the UAE publicly call for negotiations with Iran to ease tensions in the region.
The UAE’s foreign policy, after showing signs of oversupply and overconfidence, will likely continue this market correction in 2020.
Taking a hit
Consisting of seven emirates, the UAE’s domestic economy is the second-largest in the Arab world, after Saudi Arabia.
The capital and largest emirate, Abu Dhabi, holds about 94% of the country’s oil reserves, which are themselves the world’s seventh-largest deposits.
The UAE authorities have been trying to diversify in recent years to counter oil and property market fluctuations, using their considerable financial reserves to invest heavily in sectors ranging from space to renewable energy. Yet, these new industries are largely long-term bets – yet to establish a major share of the Emirati economy.
Hydrocarbon riches still account for about one third of GDP.
When in 2014 the price of a barrel of industry-standard Brent crude oil tumbled from about US$100 to only $50 a year later, the economy took a major hit. Since then, prices have edged up, yet still only averaged about $63 in 2019.
Meanwhile Dubai, a major global center for finance, trade and transportation, has also felt the economic chill, as international trade wars and slowdowns, along with heightened regional political and security risk, have impacted trade and investment.
The result has been an economy that “has continued to stutter,” according to William Jackson, Chief Emerging Markets Economist for Capital Economics.
Economic growth in the UAE went from 4.4% in 2014 to only 0.5% in 2017, according to IMF figures. While there has been improvement since, the fund predicts only 1.6% growth for 2019.
Adding to the difficulty, previous boom times in real estate led to a rash of new building projects, many of which have recently been completed – delivering a slew of new apartments, malls, hotels and offices onto this depressed market.
As a result, average prices of residential real estate in Dubai have fallen by about 35% since mid-2014, according to investment firm UBS Global Wealth Management.
“Almost every person you see with an apartment here has taken a financial hit,” one Western real estate analyst who did not want to be named given the sensitivities told Asia Times.