The UAE has emerged as the obvious safe haven (with Qatar) from the geopolitical tempest that has reconfigured the social contract in the Arab world.
The oil shock is a windfall for Abu Dhabi, owner of one tenth of the world’s oil and gas reserves, whose government infrastructure spending is the growth catalyst for the Federation. The protracted political riots in Bahrain reinforce Dubai’s bid to be the preeminent financial, tourism, trade services and aviation/shipping hub of the Middle East. Global oil companies and banks have relocated the families of their staff from Tripoli, Damascus, Sanaa, Bahrain and even Cairo to Dubai in a tradition that goes back to the fall of the Shah, the Lebanese unrest and the Iran-Iraq was in the past generation. Regional capital flows will also be attracted to the UAE because political risk premia have spiked in almost every banking market in the Arab world.
Hotel occupancy rates, airport passenger traffic, school/school enrollments, traffic, Jebel Ali export volumes, bank deposit growth rates in Dubai and Abu Dhabi reflect the post-Arab spring realities. Bahrain’s future as an international financial centre could well be undermined by the current unrest. This happened to Beirut, which lost its status as the money souk of the Levant after the PLO, Druze and Phalangist militias gutted its financial district in the opening round of unrest that culminated in Syrian intervention and two horrific Israeli invasions of Lebanon. Financial centres cannot coexist with political risk. Hence the role of the UAE as a banking safe haven.
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