A.SREENIVASA REDDY (ABU DHABI)
The UAE economy has demonstrated resilience amid the disruption caused by the Middle East conflict and the near halt of transit through the Strait of Hormuz, according to PwC’s latest Middle East Economy Watch report.
The report said the conflict triggered “one of the most severe energy supply shocks in recent history”, disrupting global supply chains and adding uncertainty to regional trade. However, the impact across the GCC has been uneven, with some economies better positioned to absorb shocks due to stronger fiscal buffers and alternative export routes.
According to the report, Saudi Arabia and the UAE were less severely affected by the disruption because both countries have the capacity to export from ports outside the Strait of Hormuz, unlike several Gulf economies that depend heavily on the corridor for hydrocarbon exports.
PwC said crude oil production across countries bordering the Strait of Hormuz declined sharply in April compared with February levels.
On the UAE’s exit from OPEC, the PwC report said near-term supply effects are likely to remain limited as long as export routes remain constrained.
“Over time, however, greater production flexibility by a major producer could influence expectations for oil prices and global energy supplies once shipping conditions normalise,” the report said.
Despite the pressures on regional supply chains and logistics, the UAE’s non-oil economy remained in expansion territory. The report noted that the UAE Purchasing Managers’ Index stayed above the 50-point threshold, considered the dividing line between economic expansion and contraction.
PwC said the conflict had affected wider supply chains as tanker and container routes were adjusted, increasing transit times and logistics costs. Air traffic disruption around major GCC hubs also affected visitor flows and weighed on short-term growth prospects.
The report highlighted how Gulf economies, including the UAE, have adapted through the reconfiguration of supply chains. Goods destined for Gulf cities were rerouted overland from Gulf of Oman ports and Red Sea ports as governments and businesses worked to maintain supplies and keep supermarkets stocked.
PwC cited a media report on timber shipments from Austria to Qatar that were redirected through the UAE by land from Khor Fakkan to Jebel Ali before onward transfer to Qatar, with surcharges tripling transport costs.
The report also pointed to measures introduced in the UAE to support businesses and maintain liquidity. Dubai launched a Dh1 billion stimulus package to ease pressure on companies facing tighter liquidity and rising operating costs.
In parallel, central banks in Bahrain, Kuwait, Qatar, and the UAE announced measures to increase market liquidity and ease capital requirements. These included easing macroprudential ratios and allowing banks to defer some customer loan payments without classifying them as underperforming loans.
The report said the UAE and Bahrain also agreed on a $5.4 billion currency swap arrangement as part of broader efforts to support liquidity at the national level.
PwC noted that the UAE Ministry of Economy and Tourism formed an emergency team with local economic departments to monitor stocks and respond to complaints about irregular price increases.
Looking ahead, the report said GCC economies are expected to prioritise diversification of trade and energy routes to reduce exposure to future shocks. It added that national and regional corridor projects are expected to strengthen multimodal trade connectivity and improve economic resilience across the region.