The economic success of Dubai has been one of the most remarkable stories of the past few decades. Due to the initial reliance of Dubai’s infrastructure on oil revenues across the UAE, the local economy has long been sensitive towards major shifts in oil prices.
However, the strategic plan to diversify the economy from oil to financial services, real estate and various services tailored to the growing expat population, have meant that the ongoing life and economic development of Dubai is considerably less dependent on oil than in the past.
Still, the oil and gas sector is an integral part of the UAE economy, which is why industry specialists, commodities traders, and analysts, have been paying attention to the ongoing oil price dips and the overall prospects of the sector throughout 2025.
Those who invest in oil know just how volatile the price can be and the reliance of an entire economy on the price of such a commodity often draws a lot of discussion regarding the potential of the ‘Dutch disease’ being at play.
Why the price of oil has been falling in 2025
The market price of Murban Crude oil has fallen from $86 per barrel to as low as $66 as of this writing, which has been an effect of the ongoing trade wars and tariffs imposed by the United States to virtually every trading partner in the world.
An overall bearish market sentiment, coupled with geopolitical tensions and a more favorable attitude towards the output of the U.S. oil and gas industry, has meant that the price of oil has fallen sharply all over the world, with the WTI crude briefly falling below the $60 mark over the first week of April, 2025.
It is also worth noting that the full effects of the Trump tariffs are still unknown and it is likely to take several years for the true economic impacts to be felt globally, which is why most analysts are not expecting a sudden bounce back in oil prices. In fact, the likelihood of the price of a barrel of oil to decrease further towards the $50-55 range is not quite low.
The effects of decreasing oil prices on Dubai
While Dubai itself is not a city that is heavily engaged in oil extraction, Abu Dhabi, the capital of the UAE, is home to the largest oil wells in the country, as well as several large refineries, which means that declining oil prices directly affects the revenues of the Abu Dhabi National Oil Company, which is one of the largest contributors to the national budget of the UAE.
However, it is also worth mentioning that the UAE has made steps in recent years to diversify itself away from hydrocarbons by shifting both its private sector and its national revenues by focusing on the construction and service sectors both in Dubai and Abu Dhabi, while introducing a flat 9% tax on corporate profits, which allows the country to tap into some of the wealth being generated in Dubai and reduce its reliance on oil and gas revenues.
In general, lower oil revenues means less funds for infrastructure, which is particularly problematic for Dubai, due to its large scale and the active constructions ongoing in the city.
The desert and hot climate also makes it more costly to build out civilian infrastructure in the UAE, which places further pressure on oil revenues, presenting a strategic risk for the country.
More possible bearish price action on oil in 2025
While the overall consensus surrounding the price of oil in 2025 is far from bullish, it could potentially get worse – a scenario which would depend on the resolution of the ongoing invasion of Ukraine by Russia, which has heavily sanctioned the Russian economy, which is also one of the largest exporters of oil and gas in the world.
A peace deal could involve lifting some of the sanctions on the Russian energy sector, which would flood the market with more Russian crude oil once again, exerting downward pressure on oil prices globally.
However, this is likely to last for a short period of time, after which, OPEC is likely to coordinate some production cuts to stabilize the price of crude on the market. In fact, such a scenario could be the most beneficial outcome for the UAE and Dubai and would halt the long-term slump of the price of black gold.
Should oil investors be worried about Dubai?
As we have already established, the reliance of Dubai on oil revenues is largely indirect, as the city and its economic zones are home to large financial service firms, real estate companies and multinational corporations, which now pay a 9% corporate profit tax, which gives Dubai more autonomy and less exposure to the energy market risks.
Only around 1% of Dubai’s economy relies on oil and gas, while tourism, services and financial sectors, as well as construction, make up most of the remaining economy.
On the other hand, Abu Dhabi, where much of the oil production in the UAE is concentrated, can be hit much harder if the prices of oil continue to slump.
It is also worth mentioning that falling oil prices can damage investor confidence, which could very well spill over to Dubai’s economic performance as well.
However, ongoing tariffs are less likely to have a major adverse effect on the oil and gas industry specifically, as they are mostly directed towards manufactured goods and certain renegotiations could be possible.
Could we see an oil price turnaround in 2025?
As we have discussed, the short-term price of oil is unlikely to rebound very quickly, as trade wars, alongside actual wars, are ongoing and actively affecting the price of the commodity.
However, if producers get hit with energy tariffs, this can slow down production and artificially boost prices on the global market, which would gives the UAE economy a rebound in revenues, while also stabilizing the price at a higher level, closer to the $65-$70 range.
However, whether such a scenario materializes remains to be seen, while short-term pressures keep prices at sub-$65 levels.
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