Exclusive: Oil Prices and the UAE: Navigating Global Volatility with Local Resilience

Vijay Valecha, August 29, 2025, Oil & Gas MiddleEast

Few commodities shape global markets and daily life in the UAE like oil. From powering economies to influencing grocery bills, oil price swings ripple across sectors, policies, and personal finances.

According to Vijay Valecha, Chief Investment Officer at Century Financial, the story of oil in 2025 is one of competing forces: geopolitical risks, policy shifts, and shifting trade flows, all converging to set the tone for both global markets and the UAE’s domestic economy.

The Global Drivers of Oil Price Volatility

Despite decades of talk about diversification, oil and its derivatives still fuel much of the world—literally. “Prices are primarily dependent on the pace of economic growth,” explains Valecha. “Anything that slows global expansion—whether recessions or wars—feeds directly into oil price volatility.”

On the supply side, OPEC once held near-total sway over production. Today, U.S. shale has altered the balance, with the U.S. now producing around 22% of the world’s oil—more than double the share of Saudi Arabia or Russia. That means geopolitical disruptions, such as Ukraine’s strikes on Russian refining infrastructure, or tariffs reshaping global trade, all leave a heavier imprint on prices.

Policy also plays a pivotal role. China, the world’s largest oil consumer, has poured over $40 billion into programs designed to stoke domestic consumption. Meanwhile, the U.S. has slapped tariffs as high as 50% on Indian goods in response to its reliance on discounted Russian crude, raising the spectre of higher costs for one of oil’s biggest buyers.

The combined effect? “Chinese stimulus is lifting demand, U.S. tariffs are reshaping trade flows, and geopolitical risks are straining supply. That creates a bullish undertone for oil despite broader economic headwinds,” says Valecha.

What This Means for the UAE

As a leading oil exporter, the UAE’s fortunes remain closely tied to the global price curve—even though non-oil sectors now contribute 75% of GDP.

The Dubai benchmark, pegged against Brent with its own pricing dynamics, ensures that international swings ripple into domestic markets.

For residents, this connection is tangible at the fuel pump. In July, petrol prices in the UAE rose between 11–12 fils per litre, mirroring a near 8% jump in Brent and WTI crude. “This is how global benchmarks translate into everyday living expenses,” says Valecha. Beyond petrol, logistics costs, taxi fares, and even grocery delivery charges rise or fall with crude. Utilities, buffered by government policy, are less volatile but still feel indirect cost pressures when oil climbs.

Oil’s Wider Impact on the UAE Economy

Price shifts reverberate beyond household budgets. In real estate, higher oil revenues boost confidence and liquidity, sustaining large projects and investor sentiment. Conversely, downturns can slow launches and tighten spending, though the UAE’s strong population growth and global investor appeal provide resilience.

In retail and hospitality, oil acts as a silent backdrop. Strong revenues support tourism and discretionary spending, while lower oil prices can squeeze travel budgets and regional consumer confidence. “Oil no longer dictates everything in the UAE economy,” notes Valecha. “But it still acts as a psychological and financial anchor for investment flows and liquidity.”

Policy Buffers and Long-Term Strength

The UAE has proactively built buffers to shield citizens from global oil shocks. Since deregulating fuel prices in 2015, the government has used monthly adjustments to smooth volatility, while social protection programs subsidise essential costs for vulnerable residents.

Crucially, the UAE’s fiscal firepower—including sovereign wealth funds worth more than $2.4 trillion—ensures it can continue public spending during downturns. Coupled with diversification into technology, tourism, and renewable energy, the UAE has developed a next-generation model to mitigate oil’s unpredictability.

Investment Risks and Opportunities

For UAE investors, oil price volatility creates both challenges and opportunities. With Brent hovering in the mid-$60s and forecasts suggesting a slide toward $50–60 per barrel by 2026, the outlook is skewed to the downside.

“When prices rise, liquidity flows into equities, banks, and energy-linked industries. But falling prices erode sentiment, slow government spending, and can strain fiscal surpluses,” warns Valecha. Diversification is key: healthcare, telecoms, and consumer goods offer stability, while selective energy plays can provide upside during rallies. Sovereign bonds, meanwhile, serve as anchors during turbulence.

The Outlook: Lower Prices, Smarter Preparation

Looking ahead, the U.S. EIA projects Brent could average as low as $51 per barrel in 2026, as OPEC+ and non-OPEC supply outpace demand. Excess inventories and expanded production cuts unwinding in September 2025 are likely to pressure prices further.

For UAE households, lower oil prices may bring welcome relief at the pump, but weaker revenues could temper government spending and broader growth. Valecha advises residents to prepare prudently: “Strengthen savings, reduce debt, and engage with the non-oil economy—tourism, tech, renewables. The more diversified your finances, the better you can weather volatility.”

Oil may no longer define the UAE economy as it once did, but it continues to shape the rhythm of daily life, market sentiment, and fiscal strength. With foresight, fiscal discipline, and diversification, the UAE has built resilience—but as Valecha makes clear, both investors and residents must remain agile. “Oil will always bring volatility,” he concludes. “But with smart planning, it doesn’t have to bring instability.”

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Oil & Gas MiddleEast