Analysis-How Dubai's safe-haven status is being put to the test
By Hadeel Al Sayegh, Rachna Uppal and Federico Maccioni
DUBAI/ABU DHABI, March 2 (Reuters) - For decades, Dubai's sales pitch featured gleaming skylines, tax-free salaries, ease of doing business and something far more intangible: the unspoken promise that whatever was happening elsewhere in the Middle East, this city was different. The conflicts that destabilised the region would somehow stop at Dubai's borders.
On 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 placesto do business in an unreliable neighbourhood.
Authorities in the 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."
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.
HOW DUBAI BUILT THE BRAND
Dubai's transformation from a modest pearling and fishing port into a global financial centre was a decades-long 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 accountingfor less than 2% of 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. Neighbouring 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 populationacross 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 February 25, valuing the company at about 149 billion dirhams ($40.6 billion).
The creation of the Dubai International Financial Centre (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 both the motive and the capability to destabilise 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 Defence.
"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.”
($1 = 3.6728 UAE dirham)
(Reporting by Hadeel Al Sayegh and Federico Maccioni in Dubai, and Rachna Uppal in Abu Dhabi. Additional reporting by Karin Strohecker and Libby George in London. Editing by Elisa Martinuzzi, Maha El Dahan and Nick Zieminski)
