United Arab Emirates

Sharp slowdown in 2026 amid regional tensions ahead of a rebound in 2027

The economy has slowed sharply in 2026 as heightened regional tensions have weighed on both hydrocarbon and non-hydrocarbon activity. While the non-hydrocarbon sector could benefit from the UAE’s diversified economic base, growth in tourism, transportation, trade, construction and financial services has moderated due to weaker business confidence, lower investment inflows and increased geopolitical uncertainty. It is for this reason that despite a UAE PMI of above 50 in May 2026 (52.6), companies are still experiencing a decline in export orders due to disruptions in maritime trade routes, security conditions and economic uncertainty. On that score, the UAE was the target of more Iranian attacks than their GCC neighbours, directly disrupting their logistics and aviation infrastructure after strikes on critical nodes like the Dubai International Airport’s Terminal 3 and the Jebel Ali Port. Consequently, international tourism receipts are expected to fall by almost 30% in 2026 from a year earlier to around USD 30 billion. A potential decline in immigration, which accounts for nearly 90% of the UAE’s population and represents a significant share of household consumption (50% of GDP), will weigh on retail demand and real estate activity. Construction activity (around 10% of GDP) will slow as investors postpone non-essential projects and developers adopt a more cautious stance amid elevated financing and geopolitical risks. Trade and logistics activities are also likely to be hampered by lingering disruptions to maritime routes and weaker regional demand. In the hydrocarbon sector, the blockade of the Strait of Hormuz and airstrikes on infrastructure forced ADNOC to shut down major offshore fields, thereby slashing Emirati oil production (around 25% of GDP) by over 40%, from 3.4 million barrels per day (bpd) to around 1.8 million. This is the capacity of its only operational bypass pipeline to Fujairah on the east coast, which is outside the strait. Oil production is expected to fall by around 5% year-on-year in 2026. Moreover, in April 2026, the UAE announced it was leaving OPEC and OPEC+. This could allow Abu Dhabi to increase its oil production to 5 million bpd. Looking ahead, a sustainable de-escalation of regional geopolitical tensions and the complete reopening of regional maritime routes would facilitate a gradual recovery in 2027. Improved geopolitical conditions would boost tourism, consumer confidence and investment, and restore the UAE’s position as a regional trade and logistics hub. Construction activity would likely begin to regain momentum, along with accelerated retail spending and a stronger services sector, in line with improving business sentiment. A durable agreement would also reduce risk premiums and ease supply chain disruptions, thus supporting a broader recovery across the non-oil economy.

To support the economy amid regional war conditions, the central bank has implemented a five-pillar AED 1 trillion (USD 272 billion) package to secure market cash flow and banking system liquidity, and to reinforce commercial lending capacity. Alongside Dubai's AED 1 billion Economic Facilitation Package and the federal AED 1 billion National Industrial Resilience Fund, this should relatively offset the negative effects of the war (e.g. higher cost pressures due to supply chain disruptions).

Inflationary pressures have inched up on back of increased import prices (i.e. food, housing and utilities) as a result of disruptions to regional supply routes. With monetary policy effectively aligned with the US Federal Reserve due to the currency peg, interest-rate dynamics in the UAE will continue to largely reflect the Fed’s stance. Against this backdrop, the Central Bank of the UAE is likely to maintain a cautious approach, prioritising financial stability and adequate liquidity conditions while keeping domestic funding costs broadly in line with global USD rates.

Twin surpluses will continue to narrow

The UAE is expected to retain a fiscal surplus in 2026, although the balance is likely to narrow to some degree as hydrocarbon revenues decrease and public spending remains high to support the economy. If geopolitical tensions continue to ease in 2027, the fiscal position should strengthen marginally, underpinned by the diversified revenue base in line with economic recovery (with non-oil revenues accounting for around half of total government income), substantial revenues from sovereign assets (estimated at around 500% of GDP as of the end of 2025) and strong market access. Since 2021, the federal government has issued sovereign bonds, raising funding through domestic dirham-denominated bonds and sukuk, as well as by international issuance. In 2025, the issuance of domestic treasury sukuk totalled around USD 1.8 billion. Together, these factors are expected to provide the authorities with sufficient flexibility to absorb oil price volatility while continuing to invest in infrastructure and strategic sectors.

Although the current account surplus is expected to narrow due to the decline in hydrocarbon exports (accounting for around 35% of total exports) owing to the closure of the Strait of Hormuz, external buffers are expected to be comfortable. Foreign currency liquidity is underpinned by substantial official reserves held by the central bank (approximately USD 260–275 billion, or equivalent to around 30–35% of GDP in late 2025), as well as substantial sovereign wealth assets. Together, these are expected to bolster confidence in the dirham’s peg and mitigate external vulnerability, even amid unfavourable global and oil market conditions.

Domestic stability in a volatile region

In contrast to their domestic political stability, the UAE continues to face elevated geopolitical risks stemming from regional tensions and global fragmentation. In the aftermath of the regional conflict, the UAE will pursue their pragmatic foreign policy aimed at preserving regional stability. The agreement, officially known as Islamabad Memorandum of Understanding, signed by the US and Iran on 17 June 2026, has eased immediate geopolitical risks and has created a framework for negotiations towards a comprehensive settlement. It has also reduced pressure on shipping routes as it includes provisory measures such as the reopening of the Strait of Hormuz and an extension of the cease-fire. However, the MoU only offers temporary relief in that it is a 60-day tool to reach a final deal. Implementing the deal depends on continued political commitment from both sides. Until a final agreement is reached, the UAE will remain exposed to renewed regional tensions. If the MoU evolves into a lasting peace settlement, the UAE would be well placed to benefit from recovering trade flows through the Strait of Hormuz, increased tourism, renewed inflows of expatriates and improved foreign investment, which would support a broad-based recovery in the non-oil economy.

The UAE operates in a regional environment where its geopolitical priorities do not always fully align with those of Saudi Arabia, another major regional power. Differences in strategic emphasis are particularly evident in Yemen, where the UAE prioritises maritime security, in contrast to Saudi Arabias which focuses more on border and conflict management. In addition, continued tensions involving Israel and neighbouring countries continue to fuel uncertainty. Although the UAE has sought to preserve diplomatic, security and economic ties under the Abraham Accords (2020), renewed escalation could hurt cooperation and raise regional security risks.

Last, the UAE is facing geopolitical spillovers from global fragmentation, including US–China rivalry, with sanctions regimes and trade restrictions. These can complicate financial flows, re-exports, technology transfers and investment decisions. The UAE’s diverse economy, robust external resources and balanced diplomatic stance mitigate these risks. The UAE has also expanded its economic footprint beyond the region, notably through investment in African logistics and port infrastructures led by state-linked operators. These initiatives are primarily connected to commercial and trade-related objectives. In addition, the UAE maintains close security cooperation with the US and includes a limited US military presence, which underpins broader defence and strategic ties between the two countries.

Payment

The most common methods of payment in the United Arab Emirates (UAE) are cash, credit and debit cards, Open Accounts, Letters of Credit, Documentary Collections, and cheques.

Cheques are the most common and preferred method of payment in the country, especially in commercial transactions, as there are no costs involved with issuing cheques, unlike transactions that are backed by a Letter of Credit or any other type of a bank guarantee. Cheques constitute a reliable debt recognition title that may be enforced directly before a judge. In addition, UAE criminal law states that a person who delivers a cheque in bad faith without sufficient consideration may be imprisoned.

Until 2016, post-dated cheques were considered the best protection against late payments, and were frequently used in the UAE as guarantees, as bounced cheques are considered as a criminal offence. The new law is silent regarding Non-Sufficient Funds (NFS) cheques, and only states in Article 32 that all the legal proceedings, procedures, and execution procedures against the debtor’s assets shall be suspended once a decision is initiated until the ratification of the scheme of composition. Composition is defined in Article 5 of the new law as proceedings aiming to assist the debtor to reach a settlement with creditors pursuant to a scheme of composition under the supervision of the court, and with the help of a trustee to be appointed in accordance with the provisions of this law. In light of the above, any claims or legal proceedings filed against the debtor – whether related to NSF cheques or another instrument (this also applies to criminal proceedings relating to NSF or bounced cheques) – will be suspended once the court has accepted the debtor’s application for the aforementioned prevented composition. It worth noting that any claim related to an NSF cheque will be treated in the same way as any other unsecured claim which may be filed against the debtor.

UAE banks are part of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is used when transferring money between banks, particularly for international wire transfers.

Debt Collection

Amicable phase

Debt collection begins with the amicable approach, during which the debtor receives a notice for payment, followed by a phone call from the creditor or an agency, with the goal of reaching a payment agreement.

Legal proceedings

The UAE Courts are comprised of: the Court of First Instance; the Court of Appeals; the Abu Dhabi Supreme Court.

Located in each Emirate, courts of first instance have general jurisdiction and include a Civil Court, a Criminal Court and a Shariah Court. Following a judgement from one of these courts, the concerned parties have the right to appeal to the Court of Appeals on factual and/or legal grounds. Following this, aggrieved parties have the right to appeal to the Supreme Court on matters of law only. Shariah Court handles civil matters between Muslims.

Fast-track proceedings

An order of payment is a procedure where a party applies to the courts for summary judgment against a defendant for commercial debts, substantiated by a valid but unpaid commercial instrument such as a bill of exchange, promissory note or cheque. If a defence is filed, the dispute must be solved via an ordinary lawsuit before the court of first instance.

Ordinary proceedings

Proceedings start by filing a plaint (complaint) in the relevant court. It must meet procedural requirements, and include both the debtor’s information and the details of the debt. The court issues a summons to be served to the defendant, which includes an endorsed hearing date.

Once an answer has been filed by the debtor, the trial process is adjourned to allow the creditor to respond. Further adjournments are given so that memoranda can be submitted by both parties. Once the court believes that the case has been sufficiently pleaded, it reserves the matter for judgment. The entire proceeding is based on written submission supported by documentary evidence. The court will issue remedies in the form of specific actions and compensatory damages. Injunctive relief is not generally available and attachment orders are difficult to?obtain.

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Enforcement of a Legal Decision

A court judgment becomes enforceable once it is finalised. If the debtor fails to comply with the court’s decision, the creditor may request enforcement mechanisms before the judge, such as an attachment order, or even the imprisonment of the debtor.

Any foreign awards must first be recognized as a domestic judgment. When bilateral or multilateral reciprocal recognition and enforcement treaties exist, this requirement is simply a formality. In the absence of such agreements, an exequatur procedure is provided by domestic private international law.

The latest law update in UAE is related to commercial claims, which can now be filed via performance order lawsuits if the financial claim is subject to the enforcement of a commercial contract, or the right holder is a creditor with a commercial paper and debt is acknowledged.

Procedures and Duration of Order: Sending a notary public legal notice to the debtor. Notifying the notice to the debtor with a successful result. Five days minimum from the date the debtor receives the notice as a period to allow the debtor to settle the dues. Register the Performance Order at the court or on the electronic system of the court according to the spatial jurisdiction of each court. The decision shall be issued by the judge within 3 working days by either acceptance or rejection. In case of issuance of the decision in creditor favor, a request to notify the debtor shall be submitted. The court shall notify the debtor in the manner prescribed by the law. An appeal period of 15 days from the date of the decision is notified if the debtor will appeal. The appeal court will review the debtor defense if it’s valid the court will schedule a hearing and invite both parties to investigate, if the court see the defense is not valid, the court will reject the appeal directly. If the debtor didn’t appeal in a period of 15 days from the date, he receives the decision notice, then the execution shall take place. Duration of the whole process approximately: 90 to 120 days.

Insolvency Proceedings

On September 4, 2016, the final draft of the Federal Law on Bankruptcy was approved. The new insolvency law proposes three new insolvency procedures:

FINANCIAL REORGANIZATION PROCEDURE

An out of court, private conciliation process that is applicable to entities who have not yet formally entered the zone of insolvency, which has the aim of achieving a consensual, private settlement between parties. An independent mediator with bankruptcy expertise is appointed by the commission for a period of up to four months to oversee discussions between the debtor and its creditors.

PROTECTIVE COMPOSITION PROCEDURE (PCP)

A debtor that is (a) experiencing financial difficulties, but is not yet insolvent; or (b) has been in a state of over-indebtedness or cessation of payments for less than 45 days, proposes a compromise with its creditors outside of formal bankruptcy proceedings. The PCP includes a moratorium on creditor action (including enforcement of secured claims) and places the debtor under the control of an office holder appointed from the Commission’s (the government agency that has the authority to oversee the insolvency proceedings) roll of experts, for an initial observation period of up to three months.

Other key tools of the PCP process include the ability to raise debtor-in-possession (DIP)-style priority funding, which may be secured on unsecured assets or take priority over existing security, and ipso facto previsions that prevent the invocation of insolvency-linked contractual termination provisions – provided the debtor performs its executor obligations. The debtor is given time to file a plan, which is then voted on by creditors.

BANKRUPTCY

The procedure is split into two elements: a rescue process within formal bankruptcy proceedings, which is procedurally similar to the PCP (including an automatic moratorium and the ability to raise DIP funding);a formal liquidation procedure.

RECENT UPDATE TO BANKRUPTCY LAW:

Various changes announced on 22 October 2020, but yet to be published in the official gazette. Key change – New Concept: “Emergency Financial Crisis” (EFC), which is defined as: “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc. ”New provisions changing the Bankruptcy Law during an EFC.UAE Cabinet to determine when an EFC exists and it has yet to do so. It would appear that a UAE Cabinet decision is required before parties can rely on the new provisions; If an EFC is announced, the new law provides certain protections for debtors, including: Debtors not required to file for bankruptcy if he has failed to pay his debts within 30 days due to EFC; Debtors can still file for bankruptcy during EFC and court may elect not to appoint a trustee in the proceedings if debtor proves the disruption to his business was caused by the EFC; Creditors cannot file as the court will not accept bankruptcy applications against any debtors during the EFC.

Settlement with creditors (only applies to debtor filings):

If bankruptcy is accepted by court, the debtor may request 40 business days to negotiate settlement with his creditors. If approved by the court, it shall be published and include an invitation to creditors to negotiate settlement within 20 business days; Settlement period offered to creditors shall not exceed 12 months; If settlement reached with creditors with 2/3rds of the debt, it shall be binding on all creditors (even those who did not participate); Settlement negotiations must be in writing and approved by the court.

Last updated: June 2026