DUBAI’S FAIRYTALE: Dubai often likes to tout that they’ve quote
on quote “escaped oil”.
According to their official website, over 95% of their GDP is non-oil based and less
than 1% of their GDP comes directly from oil.
This makes it seem like Dubai is one of the most advanced and green cities in the world.
And when you consider that the UAE has barely been around for 50 years, this feat just becomes
even more impressive.
But, while I’m sure these GDP statements are technically true, they’re also super
misleading.
In fact, it’s likely that these pieces of data were cherry picked to make Dubai’s
economy look better than it really is.
You see, just because oil accounts for a very small portion of Dubai’s GDP does not mean
that oil has played a small role in their economy.
Dubai has a deep past with oil and they’re still very much dependent on oil to this day.
Now, this isn’t to Dubai has accomplished nothing because they definitely have.
They’ve built one of the largest and most respected hospitality brands in the world.
They’ve got Emirates Airlines, the Burj Al Arab, the Atlantis, the Burj Khalifa, dozens
of luxurious malls and restaurants and who knows what else.
They’ve also made dramatic strides when it comes to attracting westerners and immigrants.
The UAE has the world’s largest migrant population in the world in terms of percentage
coming in at 88%.
And that number is likely weighed down by the rest of the UAE.
If we looked at Dubai alone, the number is likely higher than 90%.
On top of all this, Dubai have some of the loosest economic policies in the world.
They levy 0 income tax on everyday people.
And the ruler of Dubai has gone as far as saying that “his country would never adopt
an income tax as a way to tackle the deficit.”
Given their economic stance, it’s no wonder why so many high income earners and wealthy
individuals have decided to move to Dubai.
With all of that being said though, Dubai is nowhere near as oil dependent as they would
like you to think.
So, here’s the truth behind Dubai’s oil free fairytale.
NOTHING BUT POVERTY: To really understand why Dubai’s oil free
narrative is misleading, we have to first understand how Dubai became “oil free”
in the first place.
Taking a look back, the roots of modern Dubai date back to year 1822.
At the time, Dubai was a modest fishing village with a population of only 700 to 800 people.
The entire area was controlled by a nearby town that you’ve probably heard of, Abu
Dhabi.
It wasn’t till 1833 that a tribe called Al Bu Falasah would rebel against Abu Dhabi
and seceed, leading to the independence of Dubai.
This movement was led by two men named Obeid bin Said and Maktoum bin Butti, and these
two would naturally become the leaders of the newly formed city.
Obeid’s time at the top didn’t last too long though as he would pass away just 3 years
after the creation of Dubai.
This gave control of Dubai to Maktoum who would establish the Maktoum dynasty who are
the rulers of Dubai to this day.
All was not good though.
Dubai was constantly fighting for survival both economically and politically.
Dubai was barely making ends meet with their pearl diving and fishing, and they had no
money to actually advance the city.
To make things worse, Abu Dhabi wasn’t exactly a fan of Dubai’s cessation and they were
looking to reclaim the land if possible.
It wasn’t till 1892 that the UK would take on the responsibility of Dubai’s security,
enabling Dubai to focus on economic growth.
From the very beginning, Dubai was extremely open to capitalistic ideas.
One of the first things they did was establish a completely free port in 1901.
The port boasted no taxation on imports or exports, and it also offered merchants protection.
This led to a massive influx of merchants to the area who brought along with them loads
of cargo.
One of Dubai’s biggest merchants was a company called the Bombay and Persia Steam Navigation
Company.
By 1906, this company alone was trading 70,000 tonnes of cargo through Dubai.
This activity quickly transitioned Dubai into being a well known port within the area, but
given Dubai’s policy of no taxation, this wasn’t all that helpful economically.
Things would take a turn for the worse in 1908 when a gigantic storm would wipe a dozen
pearling boats and a 100 men.
Given that the majority of these men were their family’s breadwinners, their death
simply pushed Dubai further into the depths of poverty.
By this point, Dubai had been independent for nearly a hundred years, but things were
worse than ever.
Atleast, things couldn’t get any worse than this right?
Well, they could and they would.
The 1920s would bring with it a new innovation called cultured pearls which eliminated much
of the demand for pearl diving.
The 1920s also brought with it the Great Depression which absolutely and utterly destroyed Dubai.
People started emigrating in droves and the people who stayed had no other choice.
Really, the only thing that got Dubai through this period was the innate urge for survival.
CLOSE BUT NO CIGAR: While the state of Dubai was dire to say the
least, there was a small glimmer of hope.
Word was spreading about neighboring kingdoms striking record amounts of oil and solving
all of their financial worries.
Having nothing to lose, Dubai would decide to roll the dice with oil in 1937, but unfortunately,
this gamble wouldn’t pay off atleast not anytime soon.
You see, around this same time, the Americans would find an oil ocean under Saudi Arabia
and they were busy building pipelines and oil rigs and trade networks.
Not to mention, WW2 was just around the corner.
So, trying to find oil in this tiny little poverty struck town was no one’s top priority.
But, eventually after WW2 came to a close and all of the hype surrounding Saudi Arabia
died down, oil companies would turn their focus to neighboring areas like Dubai.
And in 1966, oil would finally be discovered in Dubai, but the discovery was by no means
a grand slam.
The oil was enough to save Dubai from absolute despair and start building some infrastructure,
but it was nowhere near enough to convert them into a desert oasis.
The same, however, could not be said about Abu Dhabi.
Abu Dhabi found oil in 1958, and for them, it was a grand slam.
For perspective, the UAE has nearly 100 billion barrels worth of oil and 95% of this is located
in good old Abu Dhabi.
At first glance, it probably seems like Dubai got super unlucky and the truth is they did.
They’re literally located right next to all of the world’s largest oil reserves
including Saudi Arabia, Iran, Iraq, Kuwait, Abu Dhabi, and Qatar.
Yet, their little city happens to be in one of the few locations were there’s relatively
small amounts of oil.
While this seems like a curse initially, it actually turned out to be a blessing because
it was exactly what was needed for the rulers of Abu Dhabi and Dubai to put aside their
differences and join forces.
From Dubai’s perspective, it would be stupid to let an ego battle prevent them from joining
forces with an emirate that controls 9% of the world’s oil reserves.
And from Abu Dhabi’s perspective, they were no longer that salty that Dubai seceeded because
it looked like Dubai’s bet didn’t pay off.
So, it wasn’t too hard for these two emirates to join forces with a few smaller emirates
and create the UAE in 1971.
Abu Dhabi would become the capital of the new country and the ruler of Abu Dhabi, Sheikh
Zayed bin Sultan Al Nahyan, would become the first president of the UAE.
This probably doesn’t seem too monumental.
A couple of neighboring cities got together and the richest of the bunch became the leaders.
But, this moment was actually a gamechanger.
Sure, Dubai had to make some political sacrifices but this is when Dubai truly won.
It wasn’t when they seceded from Abu Dhabi or when they opened a tax free shipping port
or when they struck oil themselves.
No, it was right here because this marked the beginning of Abu Dhabi extending significant
financial support to Dubai that’s still continuing to this day.
THE GODFATHER: Eversince the creation of the UAE, Abu Dhabi
has acted as the godfather of Dubai funding dozens of projects, handing out several loans,
and bailing them out on numerous occasions.
One of the first projects that Dubai embarked on after teaming up with Abu Dhabi was building
a new port called the port of Jebel Ali.
This port was built throughout the late 1970s and would be opened in February of 1979.
Since then, this port has become home to 5000 different companies from 120 different countries.
And the port of Jebel Ali currently ranks as the 11th busiest port in the world.
But, as you might remember, this wasn’t Dubai’s first shot at building a port.
In fact, they tried building a tax free port way back in 1901.
That, however, was wiped out by a simple storm while the port of Jebel Ali has survived numerous
explosions, attacks, and natural disasters.
The main difference between the two is that one was backed by oil money while the other
wasn’t.
Anyway, shortly after the port was completed, Dubai set out on their biggest and most successful
project of all time: Emirates Airlines.
Emirates was personally funded by the royal family of Dubai in 1985 and it has since turned
into one of the most luxurious and respected airlines in the world.
But, while people view Emirates as being rich with their jumbo A380s, Emirates actually
makes less money than Delta, American Airlines, Lufthansa, United, and even Southwest.
So, Emirates is much more of an image piece than a true profit driver.
And how was this image piece funded, well I think you know the answer.
Moving on, we have all of Dubai’s vanity projects.
First, they had the Burj Al Arab in 1999.
Then, they had the palm islands in 2004.
After that, it was Atlantis in 2008 followed up by the Burj Khalifa in 2010.
And now, we have creek tower, though that may be cancelled.
As their port, airline, and vacation destinations grew in popularity, these sectors of the economy
simply outpaced their relatively small oil industry.
And this is why Dubai is able to claim that oil only makes up 1% of their GDP, but guess
who comes to their rescue whenever Dubai needs help.
Well, it’s of course their oil rich partners, Abu Dhabi.
A perfect example of this is 2008 during the great financial recession.
As the global economy cooled down, so did travel and the revenue that Dubai pulled in.
They were no longer able to keep up with vanity projects like the Burj Khalifa, but luckily
for them, Abu Dhabi would come to their rescue with a $10 billion bailout.
We should also mention that Dubai has yet to payback Abu Dhabi, not that Abu Dhabi particularly
cares.
Dubai has consistently just been rolling over their debt eversince the financial crisis,
and they currently owe Abu Dhabi $20 billion.
And that’s just their debt to Abu Dhabi.
Dubai also has loads of internal and international debt.
Moody’s and the S&P estimate that Dubai’s total debt load stands at $79 billion.
Clearly, regardless of whether Dubai is oil dependent or not, there’s no question that
their debt dependent.
THE UGLY TRUTH: In the end, while Dubai likes to convince
the world that they’re completely self sufficient and that they’ve been able to beat their
oil dependence, this is simply not the case.
Even though oil does not account for a large portion of their GDP, it’s literally the
only reason the country was able to develop in the first place and it’s the only reason
that they remain solvent today.
If it wasn’t for Abu Dhabi’s oil bailout, Dubai would’ve likely went bankrupt back
in 2009 and it’s not clear if the Burj Khalifa would have ever even opened.
This is probably why they decided to name the building after the ruler of Abu Dhabi
at the time, Khalifa bin Zayed Al Nayhan.
The truth is that Dubai is very much dependent on Abu Dhabi’s money, backing, and influence
on the world stage.
According to Dubai’s logic, Mecca is oil independent as well.
After all, Mecca is the world’s second most lucrative tourist destination in the world
only beaten by Dubai, and they don’t make much from oil themselves.
Let’s just forget about the fact that Saudi Arabia backs Mecca with billions of oil dollars
every year.
All that matters is the GDP right?
Obviously, that reasoning doesn’t hold up for Mecca and it’s no different with Dubai.
Do you think that Dubai is oil independent?
Comment that down below.
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