Economy
Middle East conflict puts everything known about Dubai to test
For years, Dubai has been pitched with images of glittering skyscrapers, tax-free incomes, business-friendly policies and something far more intangible: the unspoken promise that whatever was happening elsewhere in the Middle East, this city was different. The conflicts that destabilized the region would somehow stop at Dubai’s borders.
Since Saturday, that all changed. Iran’s retaliatory strikes across the Gulf hit across Dubai’s key sectors, landing on airports, hotels and ports. They also hit the psychological foundations of a city that had spent four decades constructing that identity as one of the world’s most reliable places to do business in an unreliable neighborhood.
Authorities in the United Arab Emirates (UAE), a close U.S. ally, moved quickly to contain the damage to confidence as much as the physical fallout.
The UAE’s National Emergency, Crisis and Disasters Management Authority said the situation remained under control. For investors and residents watching their landmarks hit by missiles, as they stockpiled supplies, the reassurances were noted. Whether they were enough is another question.
“It’s hard to overstate the peril for Dubai’s economic model,” said Jim Krane, a fellow at Rice University’s Baker Institute.
“The physical damage may be slight, and most of the pain thus far is psychological. But Dubai’s status as a safe haven for expatriates and their businesses is in increasing doubt. The longer the war continues, the more intense the search will be for alternative locations. Dubai needs this war to wrap up now. International capital is highly mobile,” Krane noted.
In a sign of the ongoing strains, the UAE’s stock markets were closed on Monday and Tuesday, while tech outages following a hit to Amazon’s cloud computing facilities were affecting some banking operations, according to a person familiar with the situation.
Tens of thousands remained stranded in the UAE as airspaces remained largely closed, with the conflict also laying bare how heavily global air travel relies on a handful of hubs led by Dubai, the world’s busiest international airport.
Four decades after the Gulf’s trading capital set out to exploit its strategic location by setting up Emirates with two rented jets and two routes, Dubai stands at the center of a global network spanning 110 nations and 454,000 flights a year.
How Dubai built brand
Dubai’s transformation from a modest pearling and fishing port into a global financial center was a decadeslong project. The launch of Emirates airline in 1985, the opening of the Burj Al Arab in 1999 and laws in the early 2000s allowing foreigners to own property for the first time were the pillars of Brand Dubai.
Dubai’s economy is almost fully powered by non-oil sectors, with oil now accounting for less than 2% of gross domestic product (GDP). A mix of trade, tourism, high-end real estate and financial services, built on a regulatory framework that mirrored London and New York, has replaced it.
Neighboring Abu Dhabi, which holds more than 90% of the UAE’s oil reserves, remains more reliant on oil revenue for growth.
Beirut had been the region’s international financial capital until its civil war in the 1970s shattered that image. Bahrain stepped into the vacuum until Dubai’s rise rendered it a more modest player. Each succession was built on the same promise: a stable, open alternative to wherever the region’s last crisis struck. Dubai executed that promise more completely than any of its predecessors.
Dubai’s rise was itself partly built on the instability of others. With Syrians displaced by civil conflict, wealthy families rattled by the Arab Spring, and more recently, Russians fleeing because of the Ukraine war, new residents all poured capital and talent into the emirate.
The population across the UAE ballooned, from about 1 million in 1980 to 11 million in 2024. Last year, the UAE was on track to attract a record 9,800 relocating millionaires, more than any other country on earth, according to Henley & Partners.
Money has poured into real estate, propelling Dubai’s developer Emaar Properties to a record high on Feb. 25, valuing the company at about 149 billion dirhams ($40.6 billion).
The creation of the Dubai International Financial Center (DIFC) in 2004 kickstarted a push to draw financial firms. By the end of 2025, DIFC hosted more than 290 banks, 102 hedge funds, 500 wealth management firms and 1,289 family-related entities.
What Saturday changed
But vulnerabilities have remained.
The Strait of Hormuz, through which roughly a fifth of the world’s seaborne crude oil passes, runs through Dubai’s backyard. Iran, a country with the capability to destabilize Gulf commerce, sits directly across the water.
The physical damage over the weekend was stark. Dubai International Airport was hit, a berth at Jebel Ali Port caught fire and the Burj Al Arab sustained damage from interceptor fragments. Three people were killed and 58 injured, according to the UAE Ministry of Defense.
“People are afraid of what’s happening. It’s the first time they have to hide in underground places. Dubai airport, one of the biggest in the world, has to shut down for a few days,” said Nabil Milali, multi-asset portfolio manager at Edmond de Rothschild Asset Management. He reduced the firm’s exposure to stocks globally last week to prepare for the possibility of an attack on Iran.
“There’s a 70% probability we will keep a geopolitical risk premia (on the region) for a long time.”
A source at a UAE-based mid-sized investment firm said their company had begun preemptively planning layoffs and halted fundraising. Demand for gold bars surged, a jewelry industry source said. International private banks, which had been expanding advisory operations in the emirate, may also reassess the scope of their presence, according to a private banker. Firms may begin to rethink serving clients locally versus from another location, the banker said.
“Historically, markets like the UAE have demonstrated resilience during crises, including COVID, supported by strong policy response and governance,” said Madhur Kakkar, founder and CEO of Elevate Financial Services.
“At this stage, a broad structural reallocation of institutional capital away from the UAE or the wider Gulf appears unlikely unless tensions escalate materially or persist for an extended period.”
There is no data yet on capital outflows. The suspension of trading on the Abu Dhabi and Dubai stock exchanges on March 2 and 3 marks an unprecedented step for UAE regulators.
“It’s really quite a big change in perceptions,” said William Jackson, chief emerging markets economist at Capital Economics. “The Gulf economies have generally been seen as safe from Iranian retaliation. I think (that) has really changed over the weekend.”
The impact will depend on how long the conflict continues, he said. “But I think this is quite a big challenge, particularly when we’re thinking about some of the diversification efforts that are underway in the region.”
Momentous task piecing network back together
Dubai now has the momentous task of handling tens of thousands of displaced passengers and piecing its network back together while trying to minimize damage to inbound flights that represent half its traffic.
Most analysts say that, barring a prolonged regional war, the Gulf hubs will recover by virtue of the momentum and the power of their networks. But the unprecedented shutdown of all three major hubs – Dubai, Abu Dhabi and Doha – coincides with growing competition from Türkiye, Saudi Arabia and India.
“That we’ve got such a well-spread geographic business model and are well spread between visitors and those in transit suggests it’s very robust and will continue to survive any geopolitical tension that exists, wherever it may be,” Dubai Airports CEO Paul Griffiths told Reuters in a recent interview.
The strikes by the U.S. and Israel and Iran’s retaliation brought such tensions to Dubai’s doorstep, including an attack on the airport itself.
“There’s no doubt at all this is temporary. They have seen major incidents before and recovered very quickly due to their importance as global hubs,” said U.K.-based travel consultant Paul Charles. “They will recover quickly, even if there is substantial uncertainty in the short term.”
Others are less certain. The whole industry bounced back from the beating taken during the COVID-19 pandemic, thanks to demand outpacing supply. This time, however, it is demand that is at risk.
“Travelers are likely to consider more direct flights rather than stop over in Dubai or Doha. All this hub traffic is likely to take a hit,” said independent aviation adviser Bertrand Grabowski.
Favorable geography
Geography and economics remain strong allies, however.
“One third of the world’s population is within four hours’ flying time and two-thirds within eight hours,” said Dubai Airports’ Griffiths.
“We’ve seen the incredible aggregation power that a hub delivers.”
But threats to the Gulf trio are brewing. Turkish Airlines (THY) could be the biggest short-term winner through its own mega-hub outside the conflict zone, said independent aviation analyst John Strickland.
Saudi Arabia is also muscling in, followed by India, with Asian carriers picking up passengers.
Advances in aircraft design – once favorable to Gulf airlines – are also beginning to work against them. Airbus last week began assembling a second ultra-long-range A350 jet to support plans by Qantas to fly directly from Sydney to London.
Greatest uncertainty?
Emirates was founded at the height of the Iran-Iraq war in 1985. Its rapid growth led to the splintering of Gulf Air – carrier for Qatar, Bahrain, Abu Dhabi and Oman at that time – as, first, Qatar, then Abu Dhabi, set up their own airlines to form what remains a trio of Gulf hubs competing for passengers.
With Dubai’s orderly reputation shaken by Iranian attacks and anti-missile shrapnel, analysts say the greatest uncertainty of all hangs over the future of traffic to the city itself.
Questions have also been raised over the timing of the already delayed expansion of a giant new airport outside the city.
Dubai destination traffic “will doubtless recover, but there is likely to be some lasting damage,” Grabowski said.
For Emirates and sister airline flydubai, that may involve using their market power to get the system running again.
“People have short memories and they might be incentivised by some bargain deals to bring people back, but I don’t think that would need to be there for long,” said Eddy Pieniazek, head of advisory at aviation and leasing consultancy Ishka.
Inflation in the U.K. jumped to 3.3% in March from 3.0% in February, official data showed on Wednesday, driven mainly by a notable rise in energy prices following the start of U.S. and Israel’s war with Iran.
Factory gate prices also jumped and by much more than expected, the figures from the Office for National Statistics (ONS) revealed.
Economists said the increases – driven largely by fuel – were unlikely to push the Bank of England’s (BoE) Monetary Policy Committee (MPC) to raise interest rates as soon as next week’s meeting, and the key question was whether the jump in energy prices would ignite a broader inflation problem.
“Inflation will probably fall to 2.9% in April as the big hikes in regulated prices drop out of the annual comparison,” said Ruth Gregory, deputy chief U.K. economist at Capital Economics.
“But the next eight months will be an uncomfortable ride for the MPC.”
Economists polled by Reuters had mostly expected the headline consumer price inflation rate to accelerate to 3.3%, driven by a rise in petrol and other fuel costs in March.
The price of motor fuels jumped by 8.7% on the month, the biggest rise since June 2022, shortly after Russia’s full-scale invasion of Ukraine, the ONS said.
The data showed services price inflation – which the BoE watches closely as a sign of longer-term inflation pressures – rose unexpectedly to 4.5% from 4.3% in February.
But much of that increase was due to a rise in air fares driven by the timing of the Easter holidays.
Core inflation, which excludes more volatile food, energy, alcohol and tobacco prices and is also watched closely by the BoE, weakened to 3.1% from 3.2% in February.
War impact
Before the U.S.-Israeli war on Iran began on Feb. 28, the BoE said Britain’s inflation rate – the highest among the G-7 economies for much of the last four years – was likely to be close to its 2% target in April.
But last month, the BoE sharply increased its inflation forecast due to the energy price shock, predicting it would rise toward 3.5% by the middle of 2026.
The International Monetary Fund (IMF) last week predicted British inflation would peak at 4% in the coming months.
However, the BoE’s interest rate-setters have mostly said it is too soon to know what the rise in headline inflation will mean for underlying price pressures in the economy, given the weak jobs market, which could make it harder for workers to demand higher pay or for businesses to pass on higher costs.
The British central bank is expected to keep borrowing costs on hold on April 30 at the end of its next scheduled Monetary Policy Committee meeting.
Financial markets on Wednesday were betting on one or possibly two quarter-point interest rate rises by the BoE this year. But a Reuters poll of economists showed most expected no change in borrowing costs during 2026.
The ONS figures showed cost inflation reported by manufacturers, some of which will filter through into consumer prices, soared last month.
Producer input price inflation leapt in March alone by 4.4%, the second biggest monthly increase since records began in 1984, behind only the increase in March 2022 due to the energy price shock spurred by the invasion of Ukraine.
Producer prices charged by services firms rose by 3.0% in the first quarter, up from 2.8% in the fourth quarter, the highest reading since the third quarter of 2024.
Spain’s government on Tuesday approved a broad plan to tackle the country’s deepening housing crisis, a key political challenge for Prime Minister Pedro Sanchez ahead of elections next year.
Rising rental and housing costs are pricing many Spaniards out of the market, despite a recent economic boom. Incomes have failed to keep up. Analysts say tourism and population growth in cities driven by immigration have further strained supply.
The new plan, worth 7 billion euros ($8.23 billion), triples government investment in public housing over the next four years. It ensures that subsidized housing cannot be reclassified after a few years. It also includes help for young renters and home buyers.
“It is a significant step forward. For the first time in decades, there is a serious budgetary commitment,” said Raluca Budian, associate director of the Observatory for Decent Housing at the Madrid-based Esade business school.
About 40% of the money will be earmarked for growing the public housing supply, which Spain lacks compared to the European average, while 30% will be set aside for property renovations, the government said. That will include funds for making homes more energy-efficient and building in depopulated parts of the country.
The rest will go toward subsidies, with a focus on young people.
“The public is demanding an agreement to address the main problem currently affecting them,” Housing Minister Isabel Rodríguez said Tuesday. Housing routinely comes up as Spaniards’ top concern, according to state pollster CIS.
Housing costs in Spain rose nearly 13% year-on-year at the end of 2025, according EU statistics agency Eurostat.
Spain ranks near the bottom of Organization for Economic Co-operation and Development countries with public housing for rent, with under 2% of available supply. The OECD average is 7%. In France, it is is 14%, Britain 16% and the Netherlands 34%.
In the past, Spain built housing with public funds that later passed into private ownership. Once they were sold, they disappeared from the public housing stock.
Brazil does not favor either the United States or China as a trading partner, President Luiz Inacio Lula da Silva said Tuesday, underscoring the country’s balanced approach to global economic ties.
Lula said Brazil seeks to maintain strong and pragmatic relations with both Washington and Beijing, prioritizing national interests over geopolitical alignment.
“We want multilateralism,” Lula added during a joint declaration alongside Portuguese Prime Minister Luis Montenegro at Lisbon’s Belem Palace.
Last month, the Brazilian leader described China as his country’s “best partner,” as he welcomed investments by Chinese carmakers in Latin America’s largest economy.
“I am confident that the partnership with China is thriving,” Lula told an event marking the reopening of an automotive plant in Goias state, a partnership between Brazil’s CAOA and Chinese automaker Changan.
Italy’s foreign minister said Tuesday that a proposal to suspend the EU-Israel Association Agreement has been set aside, with member states expected to consider alternative measures in the coming weeks.
Speaking to reporters on the sidelines of the EU Foreign Affairs Council meeting in Luxembourg, Antonio Tajani said the proposal to suspend the trade agreement with Israel over Gaza has been definitively shelved.
“Other possible initiatives will be discussed at the next ministerial meeting on May 11, and we will evaluate them,” he was quoted by the Italian news agency ANSA.
Recalling that his country has recently suspended the automatic confirmation of the defense memorandum with Israel, he noted that Italy is applying pressure.
However, he added: “It must be the government, not the civilian population.”
“We have a different position from Spain, because theirs doesn’t seem like the right path to take. Our position is identical to Germany’s,” said the foreign minister.
It came as European countries were divided over trade ties with Israel, as Spain and Ireland pushed for the suspension, while some other countries, including Germany, had expressed opposition to the idea.
Israeli offensive in Gaza, retaliating to a Hamas attack on southern Israel, has killed more than 72,500 Palestinians, wounded over 172,000 others, while destroying about 90% of Gaza’s civilian infrastructure since Oct. 7, 2023.
Israel has repeatedly violated a cease-fire in place since Oct. 10, 2025, killing 777 Palestinians and injuring 2,193 others.
Türkiye expects to benefit from new regional dynamics after ongoing conflicts subside, Vice President Cevdet Yılmaz said on Tuesday, stressing that the country’s diversified supply structure and relative stability position it as a “safe haven” for investment.
“As a country with diversified supply systems, we do not have a supply shortage in any area. A new regional environment awaits us after the war. New dynamics will come into play, and we believe that as a country that maintains its stability and preserves its character as a safe haven, we have very significant opportunities and possibilities in this environment,” Yılmaz said.
He was speaking at a roundtable organized by the Union of Chambers and Commodity Exchanges of Türkiye (TOBB) and the U.S. Chamber of Commerce.
“Although these events may have negative impacts in the short term, they bring an important perspective and significant opportunities for Türkiye in the medium term,” said the vice president.
Oil and gas prices spiked following the start of joint U.S.-Israeli strikes on Iran on Feb. 28. Global supply chains are facing a historic upheaval as the war disrupts shipments through the Strait of Hormuz, the key transit point for Gulf oil and gas exports, as well as fertilizers.
Yılmaz said Türkiye has managed to shield itself from supply disruptions thanks to diversified sourcing, while taking measures to limit inflationary pressures caused by rising global prices.
“We are making efforts to contain the impact on inflation, even at the cost of taking on some fiscal burden,” he said.
At the same time, Yılmaz underscored Ankara’s dual approach of maintaining strong deterrence while advocating diplomacy, negotiations and cease-fires in regional conflicts.
“We support peace and diplomacy in every field and will continue to contribute to these processes,” he said.
Trade momentum continues, but imbalance widens
The meeting in Ankara, attended by senior representatives from the U.S. business community, focused on expanding bilateral trade and investment ties.
Yılmaz highlighted the strong trajectory of economic relations between Türkiye and the United States, noting that bilateral trade reached $39 billion in 2025, with the U.S. becoming one of Türkiye’s largest export markets.
Trade volume stood at $10.4 billion in the first quarter of 2026, signaling continued momentum toward the long-standing $100 billion trade target, he said. However, Yılmaz acknowledged that the trade balance has recently shifted against Türkiye, partly due to increased imports in energy and defense.
“To ensure a more sustainable and balanced structure, we aim to diversify trade and focus on high value-added sectors,” he added.
Beyond trade, mutual investments have also deepened. Direct U.S. investments in Türkiye totaled $16 billion between 2003 and 2025, with more than 2,300 U.S.-capital companies operating in the country across production, exports, employment and research and development.
Turkish companies, in turn, have invested more than $14 billion in the United States over the same period. Still, Yılmaz said Türkiye has significant untapped potential given the United States’ roughly $8 trillion global foreign direct investment stock.
Business leaders see strong investment potential
TOBB President Rifat Hisarcıklıoğlu echoed the positive outlook, saying the recent surge in trade and investment ties has created strong momentum toward the $100 billion target, though sustainability and balance remain key priorities.
He also pointed to shifting global supply chains, where trends such as near-shoring and friend-shoring are elevating Türkiye’s strategic importance due to its geography, industrial capacity and workforce.
Chobani founder Hamdi Ulukaya, who also heads the U.S.-Türkiye Business Council, said the current geopolitical environment has further underscored Türkiye’s role as a strategic investment destination.
“Türkiye has a young, dynamic business environment,” he said, adding that long-term investors could reap significant returns. “Investments in Türkiye will yield incredible results.”
Turkish home appliance maker Arçelik said Tuesday it has agreed to sell its 60% stake in a joint venture with the Japanese Hitachi Global Life Solutions under a share purchase agreement worth approximately $261 million, thus exiting the venture.
Accordingly, the Turkish company will transfer its stake in the venture called Arçelik Hitachi Home Appliances to Hitachi Global Life Solutions, the company said in a statement shared at the Public Disclosure Platform (KAP).
Under the deal, Arçelik will receive $205 million in cash at closing, with deferred payments totalling $56 million to be paid in instalments over three years, it said.
The final price will be adjusted at closing to include 60% of Arçelik Hitachi’s net cash exceeding $56 million, the company said in a statement.
Türkiye is a major white goods producer, but sales, exports and production in the sector in Türkiye shrank last year as rising costs weighed on competitiveness.
The transaction marks Arçelik’s exit from the joint venture formed with Japan’s Hitachi in 2020 and includes the transfer of 12 subsidiaries, among them manufacturing plants and R&D centers in China and Thailand.
At 7:04 a.m. GMT, Arçelik shares were around 3% higher, though still about 37% below their May 2024 peak.
Hitachi said the deal is part of a broader restructuring. It plans to fold its home appliances operations, including its remaining 40% stake in Arçelik Hitachi, into a new company to be set up under a strategic partnership with Japanese electronics retailer Nojima Corporation.
If that restructuring is completed, Arçelik’s 60% stake will ultimately be acquired by the new company under Nojima’s indirect control. If not, Hitachi will directly purchase Arçelik’s stake.
Completion is subject to regulatory approvals and the completion of Hitachi’s planned spin-off. The parties expect the closing within 12 months.
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