Regional Tensions Cast Shadow: Israel-Iran Conflict Impacts UAE Business Outlook

Desert dunes, city skyline, fighter jets

Regional Tensions Cast Shadow: Israel-Iran Conflict Impacts UAE Business Outlook

The ongoing conflict between Israel and Iran has begun to cast a noticeable shadow over the United Arab Emirates’ business landscape, particularly impacting Dubai. While the UAE’s non-oil sector continues to show growth, the heightened geopolitical tensions have led to a slowdown in demand and new orders, raising concerns about the region’s economic stability.

Key Takeaways

  • The UAE’s Purchasing Managers’ Index (PMI) saw only a slight increase to 53.5 in June from 53.3 in May, indicating a solid but decelerated improvement in the non-oil sector.
  • New business growth has softened significantly, reaching its lowest level in nearly four years, primarily due to client hesitancy amid regional tensions.
  • Dubai’s PMI experienced a more pronounced drop to 51.8 in June, its lowest in almost four years, driven by a marked slowdown in sales growth and weaker tourism.
  • Despite demand concerns, UAE firms increased output to address backlogs, and input cost inflation eased, allowing for some price reductions.
  • The conflict has introduced challenges in supply chains, including shipping and customs delays, though purchasing activity increased to stabilize inventories.

Impact on Demand and New Orders

The Israel-Iran conflict has directly influenced consumer and business spending in the UAE. S&P Global’s senior economist, David Owen, noted that the impact was primarily on the demand side, with businesses reporting a slowdown in orders. This has resulted in the weakest new business growth since September 2021 for the overall UAE non-oil sector. In Dubai, the situation is more acute, with new order volumes experiencing their weakest expansion in 45 consecutive months, attributed to competitive pressures and a decline in tourism.

Output and Supply Chain Dynamics

Despite the softening demand, UAE non-oil businesses have paradoxically increased their output. This surge in production is largely aimed at addressing existing backlogs of work, which had accumulated since early 2024. This strategy has helped to mitigate the overall impact on business conditions. While supply chains have faced challenges, including slower delivery times due to shipping and customs issues, firms have increased purchasing activity to prevent further declines in inventories.

Outlook and Resilience

Economists remain cautiously optimistic about a potential rebound in the coming months, provided regional tensions subside. The easing of input cost inflation, which is at a nearly two-year low, has allowed firms to offer discounts, potentially stimulating future sales. The UAE’s diversified economy, robust infrastructure, and pro-business policies are seen as strong fundamentals that can support a recovery. However, the current situation underscores the delicate balance the UAE must maintain to sustain growth amidst a volatile geopolitical environment.

Sources

Join The Discussion

Compare listings

Compare