Israel–Iran war threatens UAE business outlook before Q3 rebound

Business conditions in the United Arab Emirates faced fresh pressure in June as the Israel–Iran conflict rattled regional demand, denting sales and testing Dubai’s reputation as the Gulf’s commercial safe-haven. According to S&P Global data cited by Bloomberg, the UAE’s non-oil private sector showed only modest growth last month, with companies reporting a slowdown in orders amid heightened geopolitical tensions.

UAE PMI points to slowdown

The UAE’s headline Purchasing Managers’ Index (PMI), a key measure of private-sector health outside the oil industry, inched up to 53.5 in June from 53.3 in May, S&P Global said. While still in expansion territory (above 50), the muted increase reflected caution among households and businesses.

“The UAE non-oil sector showed signs of a minor setback in June due to the conflict between Israel and Iran,” said David Owen, senior economist at S&P Global Market Intelligence, as quoted by Bloomberg. “The impact was primarily felt on the demand side, as some businesses reported a slowdown in orders driven by heightened tensions.”

Dubai’s economy feels the strain

The data showed a sharper impact in Dubai, the UAE’s commercial and financial hub, often seen as the Middle East’s safe port in a storm. Dubai’s non-oil PMI dropped to 51.8 in June from 52.9 in May, marking the lowest reading in nearly four years, S&P Global reported. The decline was driven by what the firm described as “a marked slowdown in sales growth,” underscoring the vulnerability of the emirate’s economy to regional uncertainty.

Several companies cited in the S&P Global survey pointed to increased competition and weaker tourism linked to the heightened tensions, both of which weighed on new business.

A test for the UAE’s “open for business” strategy

As Bloomberg notes, the Israel–Iran conflict has posed a sharp test for the UAE’s long-standing strategy of maintaining political stability and an open, business-friendly environment in an often turbulent region.

While the UAE has largely stayed insulated from direct military fallout, the conflict has fuelled worries over shipping risks, insurance costs, regional tourism flows and investor sentiment. Dubai’s model as a neutral, globally connected hub relies on steady demand and confidence from tourists, investors and multinational firms.

The PMI data suggests that even without direct attacks, the conflict’s ripple effects can slow spending and investment.

Outlook remains cautiously positive

Despite the setback, economists see potential for recovery if regional tensions subside. “With consumer price pressures appearing limited, the latest data suggests that a rebound in sales growth is wholly possible in the coming months should regional tensions ease,” Owen told Bloomberg.

The UAE has weathered previous regional crises, relying on its diversified economy, modern infrastructure and pro-business policies to maintain investor confidence. Analysts say these fundamentals remain intact, giving the country scope for a rebound later this year.

Balancing growth and stability

The latest PMI figures highlight the delicate balance the UAE must maintain as it promotes itself as a haven for global business while navigating a volatile neighbourhood. As S&P Global’s report makes clear, even indirect consequences of geopolitical crises can undermine consumer demand and business confidence, underscoring the need for diplomacy and stability to sustain growth.

While the Israel–Iran conflict continues to cast a shadow over Dubai’s economy, many observers remain confident in its resilience, provided the region can avoid a wider escalation in the months ahead.