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.
Panama Canal Administrator Ricaurte Vásquez said Thursday that the conflict in the Middle East and rising fuel costs could ultimately benefit the interoceanic waterway as global shippers adjust routes.
In an interview with The Associated Press (AP), Vásquez said that higher energy, fuel and navigation costs could make the Panama Canal a more attractive option for commercial traffic.
“When costs increase, in general when the price of marine fuel rises, the Panama Canal becomes a more attractive route,” Vásquez said.
Oil prices have risen amid the war in the Middle East, which has led to the temporary closure of the Strait of Hormuz by Iran in response to U.S. and Israeli attacks. About one-fifth of the world’s oil passes through the waterway at the mouth of the Persian Gulf.
If higher energy costs persist, routing cargo through Panama can cut voyages by between three and 15 days, depending on the route, while reducing fuel consumption, he said.
Vásquez said higher fuel costs are expected to affect container ships, bulk carriers and tankers transporting liquefied natural gas. If Middle Eastern supplies are disrupted, shipments may be replaced by other sources, including the United States, which could redirect some LNG cargo from Europe to Asia via Panama.
Gerardo Bósquez, an executive with the Panama Maritime Chamber, said a prolonged conflict could reshape global trade routes, with gas transport among the segments likely to benefit.
Vásquez cautioned that any changes will not be immediate and will depend on how long cargo operators expect the conflict and instability in the Gulf last.
Türkiye’s exports to Spain rose 4.1% year-on-year in the first two months of 2026, reaching $1.6 billion and marking the highest January-February performance on record.
Growing trade between the two countries comes at a time when uncertainty is rising in global commerce, partly driven by protectionist steps taken by the United States.
U.S. President Donald Trump’s country-specific tariff rates were ruled unlawful by the Supreme Court, prompting Washington to pursue alternative measures.
Trump later signed a decision under the Trade Act of 1974 introducing a 10% global tariff on imports from all countries. The U.S. president subsequently announced plans to increase the rate to 15%.
Amid these developments, Türkiye’s trade ties with nearby countries have drawn attention, with improving relations between Ankara and Madrid also reflected in stronger bilateral commerce.
According to data from the Turkish Exporters Assembly (TIM), Türkiye’s exports to Spain increased to $1.604 billion in January-February, up from $1.540 billion in the same period last year.
Spain ranked as Türkiye’s fifth-largest export market during the period, accounting for about 4% of the country’s total exports.
By sector, the automotive industry led exports to Spain with $566.7 million.
It was followed by ready-to-wear and apparel at $257.3 million, chemicals and chemical products at $208.9 million, electrical and electronics at $96.1 million, and iron and non-ferrous metals at $93.5 million.
The largest increases in export value were recorded in iron and non-ferrous metals with $29.4 million, followed by automotive with $25.4 million, ready-to-wear and apparel with $14.1 million, electrical and electronics with $8.8 million, and chemicals and chemical products with $6 million.
Türkiye’s current account balance logged a net deficit of $6.8 billion (TL 299.98 billion) in January, according to the official data released by the Central Bank of the Republic of Türkiye (CBRT) on Thursday.
The current account balance excluding gold and energy indicated a net deficit of $1.23 billion, the bank added.
Goods recorded a deficit of $6.98 billion while services saw a net surplus of $2.6 billion in January.
According to annualized data, the current account deficit recorded as $32.9 billion in January, while the goods deficit was at $71.2 billion, the CBRT also said.
Commenting on the data, Türkiye’s finance chief suggested the current account deficit in 2026 may exceed the government’s projections due to rising energy prices amid geopolitical tensions.
“We assess that this increase will be manageable, thanks to our strengthening macroeconomic fundamentals,” Treasury and Finance Minister Mehmet Şimşek said in a statement on X.
The U.S. announced new probes Wednesday into what it considers unfair trade practices by dozens of countries, including the European Union and China, opening the door to penalties and potentially more levies as U.S. President Donald Trump seeks to replace duties struck down by the Supreme Court.
The Trump administration is launching separate probes centered on overproduction and importing goods made with forced labor, U.S. Trade Representative Jamieson Greer told reporters.
The excess industrial capacity probe targets the European Union, China, Japan, India and others, and could inflame tensions with those trading partners.
Many of those targeted have struck tariff pacts with Washington, which Greer said are “independent” of the investigations.
He said Trump’s trade policy remains the same as it has been “for decades,” even if his tools may change.
“We need to protect American jobs, and we need to make sure we have fair trade with our trading partners,” he added. “If we need to impose tariffs to help solve this, we will.”
Others subject to the excess capacity probe initiated on Wednesday include Singapore, Switzerland, South Korea, Vietnam, Taiwan and Mexico.
The investigation “will focus on economies that we have evidence appear to exhibit structural excess capacity and production in various manufacturing sectors,” Greer said.
He did not specify if the eventual penalties would differ based on the country.
The second probe linked to forced labor will likely be launched “no earlier than tomorrow afternoon” and impact roughly 60 partners, he said.
“This is not about domestic conditions of particular countries,” Greer added.
“It is really about whether countries have implemented external-facing laws to prohibit the import of goods made with forced labor.”
More to come
The efforts come weeks after the high court struck down Trump’s global tariffs, saying he had exceeded his authority in tapping emergency economic powers to impose them on virtually all countries.
Trump swiftly slapped a new 10% duty on imports, to last until July 24, while officials work on more durable measures as they resurrect his trade agenda.
Greer expects other similar investigations “on a country-specific basis” to come.
He seeks to conclude the latest probes “as quickly as possible,” ideally before the temporary duties expire.
Both investigations unveiled on Wednesday are handled by the U.S. Trade Representative (USTR), falling under Section 301 of the Trade Act of 1974.
This is the same authority Trump tapped to impose tariffs on Chinese imports during his first presidency, and many of the resulting duties remain intact.
Trump’s sector-specific tariffs on goods like steel, aluminum and autos, however, remain unaffected by the Supreme Court’s ruling.
Greer said it is too early to say how any new penalties from the latest probes will overlap with the sectoral duties.
Asked how the new investigations could interact with deals that Trump has reached with partners like the EU and Japan, Greer maintained: “I think that we are able to take into account these agreements.”
While he did not go into detail on what future investigations could focus on, he noted that Washington has concerns on issues ranging from digital services taxes to pharmaceutical pricing.
The Trump administration’s latest move also comes ahead of an expected meeting between Trump and Chinese leader Xi Jinping in Beijing in April.
The Turkish central bank put its easing cycle on pause and left its key interest rate on hold at 37% on Thursday, taking a more cautious stance on monetary policy due to market fallout from the Iran war.
“As uncertainty heightened amid geopolitical developments, the global risk appetite deteriorated and energy prices increased,” the bank said, adding it acted to “contain the risks posed by these factors to the inflation outlook.”
The Central Bank of the Republic of Türkiye (CBRT) also left unchanged its band of overnight lending and borrowing rates at 40% and 35.5%, respectively. Last week, it responded to the volatility by taking liquidity measures that lifted overnight rates to around 40%, up 300 basis points from pre-war levels.
“The underlying trend of inflation was essentially flat in February. As uncertainty heightened amid geopolitical developments, global risk appetite deteriorated and energy prices increased. To contain the risks posed by these factors to the inflation outlook, decisions supporting tight monetary policy have been enacted alongside coordinated fiscal measures,” the bank said in a statement following its widely anticipated Monetary Policy Committee (MPC) meeting.
Most polls indicated that the bank was likely to keep rates steady in light of recent developments and escalating regional conflict.
“The effects of geopolitical developments on the inflation outlook through the cost channel and economic activity are being closely monitored,” the CBRT said.
Annual inflation rose slightly to 31.5% in February, while the monthly figure cooled to 2.96%, compared to the higher-than-expected 4.84% increase in January, official data revealed earlier this month.
Before the expanding regional conflict began shifting expectations, the central bank had been expected to continue a rate-cutting cycle that began in late 2024. A year ago, the bank temporarily reversed course and hiked rates, though it returned to rate cuts by mid-2025.
Since the U.S.-Israeli attack on Iran nearly two weeks ago, exports from major Gulf oil producers have largely halted, causing a sharp rise in energy prices and stoking inflation concerns worldwide.
The lira was flat at 44.114 against the U.S. dollar after the announcement.
The bank, meanwhile, also reiterated that a tight stance, which will be maintained until price stability is achieved, will strengthen the disinflation process through demand, exchange rate, and expectation channels.”
“The committee will determine the policy rate by taking into account realized and expected inflation and its underlying trend in a way to ensure the tightness required by the projected disinflation path in line with the interim targets,” it added. It also again emphasized that monetary policy decisions are made prudently on a meeting-by-meeting basis with a focus on the inflation outlook.
“In case of a significant and persistent deterioration in the inflation outlook, which can also be driven by the recent developments, the monetary policy stance will be tightened,” it suggested.
“In case of unanticipated developments in credit and deposit markets, the monetary transmission mechanism will be supported via additional macroprudential measures. Liquidity conditions will continue to be closely monitored, and liquidity management tools will continue to be used effectively.”
With production across Gulf countries halted and gas prices climbing, the war in Iran and the wider Middle East is disrupting fertilizer supplies and raising concerns over global food security.
A third of fertilizer shipped by sea comes from the region and cannot make it to the global market as Iran has effectively closed the Strait of Hormuz.
That has sent global fertilizer prices soaring, with the U.N. expressing concern in particular about the impact on developing countries.
Gulf as key manufacturer
Natural gas is a key feedstock to make artificial fertilizers, and with its ample gas supplies, the Gulf region has become a key manufacturer.
The region produces nearly half of the sulphur sold worldwide and a third of urea, “the most widely traded fertilizer of all,” said Sarah Marlow, global editor for fertilizers at Argus Media.
It also produces a quarter of globally traded ammonia, another feedstock for fertilizer production, she said.
Major food-producing nations like the U.S. and Australia source much of their urea and phosphate from the Gulf nations.
Brazil, the world’s leading soybean producer, imports most of its urea from Qatar and Iran, which also exports to Türkiye and Mexico.
India relies upon Saudi phosphate.
Asia, in particularly dependent on the Gulf: it imports 64% of its ammonia and more than 50% of its sulphur and phosphates from the region, according to 2024 figures from Kpler.
But since the start of the conflict, which has seen Iran launch retaliatory strikes against its Gulf neighbors following U.S. and Israeli strikes, production has had to be shut down at fertilizer production facilities, particularly in Qatar.
And the Strait of Hormuz remains largely unnavigable.
A Chinese vessel loaded with sulphur was able to leave on March 7, but around 20 other ships were still waiting as of the middle of the week, according to Kpler, which tracks commodity flows.
Global repercussions
While Europe appears at first blush to be less exposed, sourcing just 11% of its urea from the region, it will likely be impacted indirectly.
Morocco is a big supplier of phosphorus-based fertilizers to Europe, but is dependent on the Gulf for sulphur used in their manufacturing.
The EU also imports 26% of its urea from Egypt, but the country is confronted by a halt of natural gas supplies from Israel by pipeline, pointed out Argus Media consultant Arthur Portier.
“Egyptian urea has gone from $500 per ton at the start of the war to more than $650. There is a direct impact on the price of fertilizer,” for European farmers, he said.
Other countries that source their gas from the Middle East to produce fertilizers, such as India, have had to ration supplies to their factories.
Bangladesh has temporarily shut down five out of six of them.
The U.N. expressed concern this week about access to fertilizers in some of the poorest countries.
Crop production at risk
Artificial fertilizers provide nitrogen, phosphorus and potassium necessary for crop growth.
For nitrogen-based fertilizers such as urea, ammonium nitrate and potassium, “global demand never ceases to increase, driven by Asia,” said Sylvain Pellerin at INREA, a French agricultural research institute.
INREA models that without these three key fertilizer inputs, global crop production would fall by a third.
But nitrogen fertilizers require natural gas for their chemical synthesis, and a lot of energy.
As for sulfur, it is a co-product of the oil and gas industry.
“Where there is gas, you will find urea and ammonia,” said the Argus’s Marlow.
Production of phosphorus-based fertilizers starts with phosphate rock, of which Saudi Arabia supplies 20% of the world’s total, but currently it is unable to ship it.
Uncertain outlook
In addition to the uncertainty about how long the war will last, the other question is the amount of damage that fertilizer production facilities will suffer from the fighting.
Repairs and reconstruction of facilities could considerably delay a return to normality once the fighting ends.
While the immediate needs of farmers are more or less covered, there are questions about the sowing season in the southern hemisphere that begins in June.
Portier said the war could be the spark for Europe to develop a fertilizer supply strategy.
Following the surge in fertilizer prices following the Russian invasion of Ukraine, European farmers reduced their consumption and diversified their suppliers.
The European Commission is preparing a fertilizer action plan for this year.
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