DUBAI AND ABU DHABI NAVIGATE PROLONGED CONFLICT WITH MIXED ECONOMIC SIGNALS
A senior UAE adviser’s recent characterization of the region’s condition as “neither war nor peace” frames the paradoxical position facing the emirates as they enter the seventh month of regional conflict. The assessment followed authorities intercepting a drone over territorial waters on August 31, underscoring the persistence of security threats even as economic activity has resumed across much of the business landscape.
Government policy responses have become a defining feature of how the UAE is managing the tension between ongoing geopolitical strain and the imperative to maintain economic momentum. Dubai has introduced flexible monthly rent payment options for residents, while Abu Dhabi has implemented a rent freeze. Officials have also rolled out incentives for the tourism and housing sectors. The UAE is pursuing what it terms a “Zero Hormuz” strategy, involving multibillion-dollar infrastructure investment designed to develop alternative supply routes and reduce dependence on the contested waterway.
The central bank projects GDP growth of 1.7% for the current year, a substantial slowdown from pre-conflict expansion. Economists surveyed by Bloomberg now forecast a rebound of approximately 7% in 2027, suggesting measured confidence in medium-term recovery. Abu Dhabi’s $2 trillion in sovereign wealth continues to underpin economic activity. The Abu Dhabi Global Market issued nearly 2,000 licenses and added 4,700 workers in the first half of the year. The Dubai International Financial Centre surpassed 10,000 active companies, though competition from Singapore, Hong Kong and Greece for global capital has intensified.
The conflict’s economic footprint remains visible across multiple sectors. Strait of Hormuz disruptions have elevated import costs and fuel prices while straining supply chains. Gasoline prices in the UAE have climbed about 60% since the war began, though they remain substantially below levels in the United States and the United Kingdom. Airport traffic, hotel occupancy and property sales have all declined, and recruiters report having to restructure compensation packages to retain top talent.
Dubai International Airport experienced a decline of nearly one-third in traffic during the first six months of the year. The facility expects recovery to accelerate later in 2026 but has deferred its target of reaching 100 million annual passengers. Hotel occupancy in Dubai fell to approximately 64% in August from 76% a year prior, with room rates dropping roughly 10%, according to Philip Wooller, Middle East and Africa director at CoStar.
Jebel Ali Free Zone and its port, which account for at least one-fifth of Dubai’s GDP, face particular strain from supply chain disruptions. The UAE is working to reconfigure supply chains and establish new export routes to mitigate these pressures. Real estate growth has moderated from post-pandemic peaks. Sales have slowed and some rents have eased, though sellers have largely resisted price reductions. Consumer price inflation remains a concern, with the UAE’s consumer price index projected to accelerate to 3.2% in 2026 before easing to 2.3% in 2027, according to median estimates from 11 economists compiled by Bloomberg.
The resumption of the academic calendar in September offers a window into how the emirates are managing competing pressures. Within hours of the drone interception on August 31, traffic around schools in Dubai and Abu Dhabi surged as children returned to classrooms, a visible marker of how routines have reasserted themselves despite what officials describe as the most significant shock in the country’s recent history.
The education sector reflects this duality. At Brookfield-backed GEMS Education, roughly 1,800 students departed when hostilities began, with approximately 700 returning. Chief Executive Officer Dino Varkey projects 147,000 enrollments for the current academic year, a gain of 2,000 over the previous year, though he cautioned that growth may trail historical rates. Dubai-listed Taaleem Holdings PSC reported enrollment growth of roughly 7% across its private schools to about 19,500 students. CEO Alan Williamson noted that the schools continue to see “demand outstripping supply even in what we would all agree has been a very challenging period.”
Seven new private schools opened in Dubai this year, introducing 17,000 additional places. International institutions including Britain’s Harrow and Rugby School have launched Dubai campuses, with Harrow planning an Abu Dhabi branch for next year. Annual fees at such institutions can reach approximately $42,000.
By contrast, international airline capacity remains a constraint on recovery. Most global carriers remain suspended, with Turkish and Indian airlines among the exceptions. Philippe Zuber, CEO of Kerzner International (which operates the Atlantis hotels and One&Only Resorts), reported that regional demand from returning international travelers is pushing occupancy across Dubai properties above 80% for the year-end festive season.
Ahmed Galal Ismail, CEO of Dubai-based Majid Al Futtaim, described the operating environment as “challenging,” with hospitality affected by reduced tourism and non-food retail facing product availability constraints. The conglomerate is passing increased costs to consumers while noting that shoppers are deferring major purchases.
Dubai’s population reached 4.58 million at the end of 2025, with approximately 200,000 residents added during the year. Mobility analytics firm xMap recorded that activity near DIFC recovered to about 90% of pre-war levels before declining during the August school break.
Monica Mali, chief economist at Abu Dhabi Commercial Bank, emphasized that the UAE’s structural advantages should sustain population retention. “A favorable business environment, including low taxes, world class infrastructure and access to labor will continue to stand out in the medium term,” she said. Whether those advantages prove sufficient to close the gap between the 1.7% growth projected for this year and the 7% forecast for 2027 will depend, in large part, on how quickly supply chains and air connectivity can be restored.