Dubai, Oil and the Future
Dubai has grown by leaps and bounds on its oil revenues. These are however likely to dry up by 2016 and that will create some problems. However Dubai is trying for alternate sources of revenue.
Oil has fueled the development of the Middle East and the UAE in particular. Dubai which has grown tremendously since the sixties has been part of this boom. But there is a subtle difference. Though the initial growth was fueled by the discovery of oil , yet the subsequent development is not based on oil. A look at history shows that in the early sixties Oil was discovered in Dubai. The oil fields were however not located on the Dubai coast proper but on the ocean reef at a distance of about 115 km from the shore. These were the off shore oil fields. The main fields are Fatah, Southwest Fateh and two smaller fields, Falah and Rashid. There is one onshore field at Margham .
Oil was the initial catalyst for the economy as by the oil prices soared to astronomical levels. Riding on this price rise Dubai was transformed to a state of affluence. The foundation for the growth of Dubai was thus laid. In fact an economic boom took place and that transformed Dubai from a sleepy village to a mega financial center.
But over the years Dubai’s oil reserves have reduced. As things stand they are not expected to be active beyond a maximum of 20 years. The main operator of the oil in Dubai is the Dubai Petroleum Company. This company has monopoly. Gas is not much in abundance and Dubai is rated to have only a 2 per cent share of the UAE's gas reserves.
Mohammed the present Dubai ruler has been told that Dubai's four billion barrels of oil reserves would be exhausted by 2016 if the 1990 levels of production at four billion barrel is continued.
One must be clear that Dubai has only two percent (at about 80,000 barrels a day now) of the about 98.2 billion barrels of UAE's oil, and oil contributes to less than six percent of its economy. But despite oil going out of the economic system still Dubai is a financial market. The rulers of Dubai have made an attempt to take oil out of the system and rely on other parameters. The new policies did attract capital and Dubai was booming till an economic bust late in 2009 put the clock back. Real estate crashed and the fact is that without oil to shore up revenues, the going will be difficult in the years to come. Analysts believe that the correction had to happen as the debts were growing and growing.
This is the genesis of the present economic defaults and oil which fueled the economy now accounts only for 6% of the gross revenue. Dubai may be in trouble in the long run in the next two decades. Dreams of grandeur cannot succeed just on sand.