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The Rise of Dubai: How Oil Fueled the Development of a Desert Metropolis

A Modern Metropolis

Situated along the eastern half of the Arabian Peninsula on the shores of the Persian Gulf, the metropolis of Dubai is the most populated city in the United Arab Emirates and is also the capital of the Emirate of Dubai. Today, Dubai is known as one of the most luxurious and economically successful cities in the world, with a thriving tourism sector and a hub for international trade and development. To fuel the development of a thriving metropolis rising from the vast wilderness of the Arabian Desert, political leaders from the United Arab Emirates invested oil industry profits into a series of developments that transformed Dubai into a global business city and a hub for international tourists.

Within the past couple of decades, Dubai has become an increasingly sought-after luxury tourist destination, with an unbelievable array of luxurious features. In addition to having a police force that patrols the streets in Lamborghinis and Ferraris, the city is home to the Burj Khalifa, which at nearly 3,000 feet tall, is the world’s tallest building and cost the city about $1.5 billion to construct. Other extraordinary man-made feats include the world’s largest shopping mall, the world’s largest man-made marina, the largest array of artificial islands, an indoor ski area, and the world’s tallest building that features a dizzying 90-degree twist. These feats of engineering are juxtaposed with beautiful beaches, calm seas, and vast deserts.

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Vast Oil Revenue

While Dubai is now known as a glittering cosmopolitan city, the region was once known merely as a remote fishing village, as well as a desert trading post. The history of Dubai can be divided in two: prior to the discovery of oil, and after the discovery of oil. During the late 1950s, large reserves of oil were found in between Dubai and Abu Dhabi, which is the capital city of the United Arab Emirates. Today, the United Arab Emirates as a whole is home to about 97.8 billion barrels of oil, which makes up nearly one-seventh of the world’s proven crude oil reserves (Mashian, 2018). In less than half a century, Dubai monetized its oil wealth and grew from a small fishing village into a city with a skyline that mirrors that of Manhattan. The massive financial growth that began with the production of oil was put towards the development of the region’s built environment. Following the accumulation of wealth from fossil fuels, Dubai’s leaders quickly went to work on infrastructure planning and real estate development that set the foundation for a successful future.

Over the past three decades, the tiny Persian Gulf nations of Bahrain, Qatar, and the United Arab Emirates have experienced tremendous economic growth from the extraction of fossil fuel reserves. These nations hold some of the world’s largest reserves of crude oil and natural gas, and have used the wealth generated from these resources to create vast and vibrant metropolises that have risen from one of the most arid and inhospitable regions of the world. With roughly 489.4 billion barrels of proven oil reserves, the Arabian Gulf has among the most prodigious reserves of energy on the planet (Dargain, 2014). The entire region holds about 36 percent of world’s oil and about 23 percent of the world’s natural gas reserves (Dargain, 2014). Based on an analysis conducted as part of the BP Annual Statistical Review of World Energy, the reserves of oil and natural gas in the Arabian Gulf will last another 70 years and 118 years respectively.

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Source: Pixabay

GDP Growth

Dissimilar to the countries of Iraq, Libya, Nigeria, and Venezuela that became victims of what is known as the natural resource curse (a paradox where countries with abundant reserves of fossil fuels have experienced less economic growth, less development, and fragmented social systems when compared to nations with less fossil fuel reserves), the oil-rich Persian Gulf nations have made prudent investment choices that have led the countries to achieve among the highest per-capita GDPs in the world. With the increasing GDP, these countries have also experienced tremendous growth in terms of their overall standard of living.

Dubai first started to export oil in 1969. Three years later in 1971, Dubai became one of the seven emirates that make up the United Arab Emirates (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah, and Umm Al-Quwain) after achieving independence from Great Britain. As part of the United Arab Emirates, Dubai has a high level of independence over its economy, which has allowed the city to diversify its revenue stream. The economic success of the cities of Dubai and Abu Dhabi have helped the United Arab Emirates achieve the second highest GDP in the Persian Gulf, just behind Saudi Arabia. As a result of the continued economic growth, the Institute for International Finance forecasts that the country will achieve a GDP of $410 billion in the coming years (Dargain, 2014).

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Economic Diversification

Among the tiny, yet oil-rich Persian Gulf nations, the United Arab Emirates is the only one that remains as a member of the Organization of the Petroleum Exporting Countries (OPEC). The country first joined OPEC in 1967, and has strategically used membership to increase revenues from oil and gas production. The discovery of oil, coupled with membership in OPEC, helped the United Arab Emirates achieve rapid economic growth beginning in the 1970s and 1980s. Along with the rapid oil-fueled development, the city of Dubai is well-known for its quick moves to diversify its economy. In 1978, the first skyscraper in the country became the 39-story Dubai World Trade Center (DWTC) building, which would become a symbol of Dubai’s efforts to use real estate and development in general as a means to diversify the region away from just fossil fuel production (Mashian, 2018). As development continued, a sophisticated central business district was among the first complexes to take shape in the city. Moreover, following the development of complex businesses housed in architecturally unique buildings, the tourism industry also exploded. Data that were collected during the end of 2016, showed that the value of active hospitality-related projects in the region surrounding Dubai was roughly $71.6 billion, with over 543 developments under construction (Mashian, 2018).

The booming economy that was fueled primarily by fossil fuels has become transformed into a truly diversified network of business districts and financial hubs. The Dubai Design District, Dubai Internet City, and the Dubai International Finance Center are just a few of the now numerous business districts that have encouraged many international investors to take a stake in the development of Dubai. While oil revenue originally helped to drive the majority of Dubai’s economic growth, less than two percent of Dubai’s revenue now comes from oil, which is down from 43 percent in 1992 (DiPaola, 2010). The city’s economy now primarily relies on wealth that is generated from international trade, tourism, real estate development, aviation, and financial services.

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Forward-Thinking Investments

Sheikh Mohammed bin Rashid Al Maktoum, the Vice-President and second Prime Minister of the United Arab Emirates, made a critically wise decision to invest some of the first oil profits into the construction of Port Rashid, which has since been supplemented by Port Jebel Ali, now considered as one of the top ten busiest seaports in the world. The hypermodern seaport boasts the largest man-made harbor in the world, and is strategically located southwest of Dubai in the Persian Gulf. Dubai’s successful ports have dramatically increased international business ventures and have become some of the United Arab Emirates’ most highly valued commercial assets. One of the most notable aspects of Dubai’s port system includes the development of the Jebel Ali free zone, as it has become the world’s largest economic zone (20 square miles) where business can take advantage of attractive tax benefits and a lack of foreign ownership restrictions. Several thousand global companies are currently involved in the Jebel Ali free zone, which makes up over 20 percent of total foreign investment made in the country, employs 150,000 people, and generates $80 billion worth of annual trade, accounting for about 21 percent of Dubai’s total GDP (Simpson, 2018).

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The Wealth Transformation

With a per capita GDP of $57,744, the United Arab Emirates is now the world’s third-richest country, behind only Luxembourg taking second place and Qatar taking the first spot (Simpson, 2018). This is an amazing feat for a region that, just over fifty years ago, was dominated by shantytowns and quiet fishing villages. From the mid-1770s up through the late 1930s, the pearl diving industry was the chief form of commerce in Dubai. However, as a result of the 1929 Great Depression and the development of artificial pearls, the economy of Dubai collapsed into economic ruin during the late 1930s through the early 1950s. While much of the world had started to experience the post-World War II economic boom in the 1950s, one historian described the homes in Dubai as being, “Mostly made from mud, and its streets were mostly narrow and unpaved, leading into the desolate desert in all directions” (Abdulla, 2006).

Following the discovery of oil off the coast of its neighboring city of Abu Dhabi, Dubai began oil exploration in the early 1960s. After the oil market started to mature in the 1960s and 1970s, the city’s population began to explode. From 1968 to 1975, the population of Dubai grew by over 300 percent. It’s difficult to picture Dubai prior to the discovery of oil, now that the city has become one of the most modern and globalized metropolises in the world. While Dubai may no longer rely on its oil wealth for development, economists believe that the city wouldn’t have been able to achieve such a dramatic transformation without oil as a catalyst. The conversion of a desolate desert region into a city with massive skyscrapers, lush gardens, state-of-the-art business institutions, and attractions like the world’s first underwater hotel would not have been possible without the revenue growth from fossil fuels.

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Life After Oil

As many nations from around the world have been evaluating opportunities to reduce reliance on fossil fuels, Dubai has shown how a country can diversify its economy away from oil, while also continuing to grow its economy. As the neighboring gulf countries have experienced a series of economic rollercoaster rides from dramatic swings in fossil fuel prices, Dubai’s economic growth has remained relatively robust because of past decisions that put the country on the path toward economic diversification. Despite benefiting tremendously from the oil industry, the desire to establish a post-oil future has helped Dubai remain prosperous during periods of volatile energy prices. In fact, Dubai’s oil production has dropped steadily over the past couple of decades. Crude oil production peaked at 400,000 barrels per day in 1990, and dropped to 300,000 barrels in 1995, around 180,000 barrels in 2000, 120,000 barrels in 2003, and no more than 100,000 barrels in 2005 (Abdulla, 2006). While the city’s oil production has continued to fall, the country’s economy has continued to grow. Even though Dubai still exists among one of the world’s most oil-rich regions, the city has become a symbol for life after oil.

Sources

Abdulla, A. (2006). “Dubai: An Arab City Going Global.” Journal of Social Affairs: Volume 23. Issue 92.

Dargain, J. (2014). “Oil Production and Consumption: Strategies for the UAE.” Emirates Center for Strategic Studies & Research: The Emirates Occasional Papers.

DiPaola, A. (2010).”Dubai gets 2% GDP from oil”. Bloomberg.

Hana, M. (2017). “Innovation in the UAE: From First Foundations to ‘Beyond Oil’.” Global Policy: Volume 8. Issue 3.

Jong, M., et al. (2019).“City Branding, Sustainable Urban Development and the Rentier State. How Do Qatar, Abu Dhabi and Dubai Present Themselves in the Age of Post Oil and Global Warming?” Erasmus School of Law and Rotterdam School of Management.

Mashian, S. (2018). “International Trek to Dubai: A City Built in the Desert. Cornell Real Estate Review: Volume 16. Issue 9.

Said, S. (2013). “The Reasons Why Dubai Became so Rich.” The Richest.

Simpson, L. (2018). “Why Is the City of Dubai so Rich?” Culture Trip.

UAE. (2019). “Oil in Dubai: history of discovery and impact on the economy of the UAE.” Government of the United Arab Emirates.

 

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