The European Union's (EU) agreement to implement a partial embargo on Russian oil is boosting demand. The EU has agreed in principle to cut oil imports from Russia by 90 percent by the end of 2022. Furthermore, following the easing of coronary restrictions in China, experts expect fuel demand to pick up.

On the supply side, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will produce an additional 650,000 barrels of oil per day in July and August 2022, representing a 50 percent increase in production compared with the previous month. Nevertheless, an easing on the market cannot be expected. Saudi Arabia announced a 47 percent increase for its Arab light crude for the Asian market. In early trading, a barrel of Brent cost around US$120 on June 6, 2022. The Gulf emirate intends to use the additional revenue from the oil business to drive forward the diversification of its economy.

Investment: Foreign investment on the rise

In 2021, the desert state recorded a strong inflow of foreign direct investment (FDI). These stood at approximately US$21.8 billion, registering a year-on-year increase of 10.5 percent (2020: US$19.8 billion). This makes the UAE the largest recipient of FDI in the entire Gulf region. This compares with the equivalent of around US$19.3 billion in Saudi Arabia.

According to experts, this positive development is likely to continue in the current year 2022 and is related to a new regulation of the investment law. Foreigners are allowed to set up independent companies in many sectors. These are start-ups on the so-called mainland, independent of the already very liberal free trade zones. It is hoped that start-ups will provide much-needed impetus for the development of the private sector.

Consumption: inflation likely to rise in 2022

Economists at the Economist Intelligence Unit expect inflation to rise by around 4.4 percent in 2022 compared with the previous year. This assumption is based on rising global food and energy prices, higher local real estate prices and an expansionary monetary policy. To somewhat cushion the impact on consumption, the UAE Ministry of Economy has issued a new directive to control the prices of basic consumer goods. Private consumption growth in 2022 is losing some momentum, but remains in positive territory at a forecast 5.4 percent (2021: + 6.7 percent).

Foreign trade: German exports picking up speed

According to initial preliminary data for 2021, total UAE exports increased by 16.3 percent in real terms to US$317.6 billion. A large share of approximately 60 percent will continue to be re-exported to third countries. Imports increased by 11.7 percent and reached US$235.4 billion.

In 2021, imports from Germany rose by around 3.9 percent in nominal terms to 7.1 billion euros. A significant increase was seen above all in SITC 79 "Other means of transport" (mainly aircraft), where there was a rise of 15 percent. This is more of a base effect, as a sharp decline was observed in this category in the prior-year period. If item 79 is excluded from total imports from Germany, the increase is around 1.4 percent.

The real estate market has also become very important and thousands of apartments have been created in the skyscrapers of Dubai Marina, luxury villas on the Palm Island and much more. Within a few hours, all villas were sold out, for example, on The Palm Jumeirah and many investors wanted to become rich and then sell them again for a profit. This has also worked for a long time and many have become rich and others have lost money, for example, in a real estate fund. Then came the international financial crisis and it came to a crash that brought the real estate market to a standstill. But after a few years this has now recovered and it is built a little slower and the existing building sites must first be completed. However, this will also take a few more years. After that, there will certainly be new projects where some of them have already been announced. Tourism is to become the most important source of income and in 2020 an estimated 20 million tourists per year will come to the country. Very important is also the international airport and the airline Emirates which naturally provide for the guests. The neighboring emirate of Abu Dhabi, the capital of the United Arab Emirates, has even larger oil deposits and these are expected to last for another 100 years. But there they are already investing heavily in infrastructure and tourism. However still somewhat more slowly than in Dubai. Meanwhile, there is also a stock exchange in the city the Dubai Stock Exchange where trade is operated and it is one of the largest in the region. This market is also becoming increasingly important and many specialists work there in modern offices. Therefore, many guest workers are needed in the construction industry, hotel industry and many more. It is estimated that about 10,000 people from Germany, Austria and Switzerland already live and work in Dubai. Especially specialists and executives are in demand like managers in a hotel or engineers on the construction sites who can earn a lot of money there. The economy in Dubai is growing every year more and more and already now the city is one of the most influential in the world.

Banks, insurance companies and shipowners fail to provide support

The increasingly restrictive sanctions are making it difficult for Russian state-owned companies to trade, including those responsible for transporting raw materials. In addition, the fact that many companies have stopped doing business with Russia on their own initiative is a problem: Banks have withdrawn credit lines that are important for financing business, and shipping companies and insurers have also discontinued their services.

Dubai has not imposed sanctions on Russian individuals or companies - and now sees its chance to compete with Switzerland as a hub for global commodity trade. Although Switzerland claims political neutrality and does not allow weapons to be brought out of the country into the conflict zone, it has followed the EU with its strict sanctions regime.

By the end of the year, the EU plans to ban the insurance and financing of the transport of Russian oil to countries outside the community of nations. Switzerland has announced it will do the same.

"The Federal Council has announced that it will do exactly the same thing, and this is part of it," a spokeswoman for the Swiss State Secretariat for Economic Affairs (SECO) said by phone. "It's really the same thing, we're incorporating all the European Union regulations into Swiss law."

Trade bans first for coal, then for oil

When fully in force, the regulation will presumably further complicate trade in Russian oil and complement Switzerland's ban, announced in April, which prohibited trading in, selling and offering financial services related to Russian coal. But the regulations will also help drive some companies away.

"The trade in energy between Russia and China would normally have been handled by a commodities trader in Switzerland with the financial backing of a banker in London - who wants to do that now?" asks Jacobs. "It's likely that companies that do that will inevitably move to another country."

Executives from Russia's state oil producer Rosneft flew to Dubai last month to explore the idea of a trading venture. Gazprom, Russia's third-largest oil producer, is also looking to expand its presence in the city, according to people familiar with the matter.

Litasco, the sales and trading arm of Russian energy giant Lukoil, plans to relocate some Russian traders and other staff from Geneva to Dubai to make the city the company's new central hub and increase the number of traders already working there. Lukoil is the second largest Russian oil producer.

Another Geneva company, Solaris Commodities, a trader of Russian grain, opened an office in Dubai last week, according to a person familiar with the matter who asked not to be named because the information is confidential.

Financing side as a problem

Although sanctions do not apply to agricultural products, it has become more difficult for traders to access financing as Swiss banks shy away from Russian commodities - whether or not they entail sanctions, the person said.

Commodity traders face additional problems with financing: Russian banks had entered the business as Western lenders such as BNP Paribas and ABN Amro increasingly pulled back. Sberbank, which was recently added to the list of sanctioned entities, doubled the volume of its financing in Swiss commodity trading last year, with money flowing mainly into the petrochemical, metals, grain and fertilizer sectors. These money flows will now no longer be possible.

Other Swiss cities are also threatened by outflows. Zug, long a hub for commodities trading because of its extremely low taxes, became infamous worldwide in the 1980s as the refuge from U.S. justice of legendary trader Marc Rich. The commodity companies based there are also turning their gaze toward the Middle East.

Zug-based Suek AG, the exclusive marketer of coal from Russia's largest producer, plans to set up a trading business in Dubai. EuroChem Group, one of the world's largest fertilizer producers with most of its assets in Russia, is also setting up a business in Dubai. Both were owned by billionaire Andrey Melnichenko until the start of the war in Ukraine.

Several boutique firms in Dubai with ties to some major trading houses have also been involved in Russian business, according to people familiar with the matter.

Dubai was prepared

Since the invasion of Ukraine, the United Arab Emirates (UAE) has attracted wealthy Russians and their money, and now state-owned companies and private commodity firms are following suit. The UAE has adapted its financial infrastructure to such situations: Emirates banks have become a mainstay of commodity trade financing in recent years and are now an integral part of syndicated revolving credit facilities issued by the largest companies in the industry.

Dubai's abundance of free trade zones, its proximity to Middle Eastern energy producers and low taxes have already proven enticing, even if the city has some catching up to do compared to global hubs such as Singapore, London, Geneva and Stamford. Last year, the Dubai Multi Commodities Center co-hosted an event with the Moscow Chamber of Commerce to attract Russian companies to locate in Dubai.

"Dubai has become a real global commodities hub," says Najla Al Qassimi, the Dubai-based director of global affairs at think tank B'huth, who was previously based in Geneva. "There's the right infrastructure, the right transportation connectivity and the right services to support these companies."