Beyond the Hormuz Shock: How the UAE Weathers a New Geopolitical Reality

Executive Summary

Geopolitical events have always been hard to predict and difficult to assess. It has now become a new normal for geopolitical conflicts to morph into “forever wars”. The US-Iran conflict that began on the 28th of February 2026 in the Middle East has introduced renewed volatility across energy markets, trade flows, and financial systems. While the flash point has been trade (lack of exports), feeding into economic weakness, the collateral damage (second-order effect) is felt in two main sectors in the UAE - Banking and Real Estate. The Banking sector remains well capitalized and has the buffers to withstand any near-term shocks. However, a prolonged conflict could dent profitability and lead to a deterioration of asset quality. For the real estate sector, the larger question is whether this conflict will change foreign investors' perception of the UAE and affect inflows. Nevertheless, the UAE has remained resilient in past crises and exhibited a strong recovery. Regarding the economic impact of the current conflict, we expect a recovery to an 80% steady state in 2026 and a return to normalcy in 2027.