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Soaring Dollar Not All Good for UAE

January 5th, 2015 · No Comments · Abu Dhabi, Dubai, Journalism, The National, tourism, UAE

A business story. Ugh. But the business of the UAE is business. Commodities and services and tourism and all the rest of it. The National has a 12-page business section, broadsheet, and the biz crew has no trouble filling it.

Something is always going on.

The big biz news story for months now has been the plummet in oil prices.

The price of oil fell below $55 a barrel today, down from about $150 a barrel a few months ago. Which cuts deeply into UAE revenues, of course. In particular, those of the emirate of Abu Dhabi, which pumps nearly all the oil produced in the UAE. (But, still, Abu Dhabi apparently can produce a barrel of oil for about $6, a rock-bottom expense in the world of oil. So the profit is still significant.)

One trade-off for this period of oil-price decline, for the UAE, was thought to be the rise of the dollar, which reached a nine-year high today in relation to the euro — one of the latter costs $1.19, down from about $1.39 a few months ago.

That’s good for people holding dollars, or dirhams, the currency of the UAE, because the latter is pegged to the dollar. A dirham is worth 27.2 U.S. cents. Always.

And now those dirhams buy a lot more stuff denominated in euros. And lots and lots more stuff denominated in Russian rubles, which have lost half their value in a year.

However, even that has a downside for the UAE, according to our business section.

And that would be the damage done to the tourism sector, which is hugely important in Dubai, the epicenter of tourism in the country, but also to Abu Dhabi.

Dubai financial people estimated that their business from Russian tourists was down 20 percent in 2014. Which is noticeable. Almost entirely because of the decline in oil prices, because Russia doesn’t have an economy so much as it just sells oil and gas, and with oil revenues off, the economy there is approaching collapse and fewer Russians are traveling.

The next notion is that a suddenly weaker euro will lead to even fewer visitors, spending less money, from the euro zone — which is most of west and central Europe, and accounts for a significant chunk of tourists.

Of course, the flip side is … the dollar and the dirham buy more in the euro zone, as well as in Russia.

A Paris trip, anyone? A summer house in Greece, perhaps? A dacha near Moscow. (Uh, no.)

Anyway, if we can spend our dollars in Europe, they will buy more than they have in nearly a decade. But in the biz world, all good news comes with bad. My boom is your bust.

 

 

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