Dubai has a good chance of keeping its crown as the Gulf's financial and commercial hub despite the Iran war, if history is any guide.

The war punctured the image of stability that Dubai's business model depends on, but the emirate's authorities "seem to be doing all the right things" for it to emerge with its status intact, Capital Economics economists William Jackson and Jason Tuvey argued in a note published on September 23, after comparing it with financial centres that have survived or succumbed to shocks over the past four centuries.

The note follows the consultancy's quarterly regional outlook a day earlier, which forecast a slow and bumpy recovery for the Gulf. Dubai matters more than most to that recovery, since it is the Gulf economy least able to fall back on oil: "Dubai's economy faces perhaps the biggest long-term challenge from the Iran war of anywhere in the Gulf," the economists wrote.

Services, not oil

Dubai's economy grew from about $17bn in 2000 to $260bn last year, faster than any other Gulf economy, and its population has quadrupled this century. Z/Yen ranks it among the world's top ten financial centres, well ahead of the rest of the Gulf.

Oil accounts for less than 1% of its GDP, against 20-40% for hydrocarbons elsewhere in the Gulf. Wholesale and retail trade, restaurants and hotels make up more than 25% of the economy, transport and storage 15% and financial and business services a similar share - together more than 60%, against less than 25% in Saudi Arabia. All of that depends on a steady flow of foreign workers and tourists.

The UAE was targeted by Iran far more than its neighbours, and hotel occupancy was down about 30 percentage points in 1H26. Dubai drew 44.4% fewer international visitors in January-August than a year earlier, although August was the best month since the war began. S&P Global's August Dubai Economy Trackers point to recoveries in construction, trade and even tourism.

Finance is mixed: bond issuance and equity and bond trading have been strong, but IPO and M&A activity has been softer. Property prices are falling after a long post-pandemic boom, but Capital Economics does not expect a repeat of the 2009 debt crisis because banks are well capitalised, government-related entities have deleveraged and Abu Dhabi's savings would almost certainly be used in a crisis. It expects a modest fall in Dubai's GDP this year and an uneven recovery, with tourism lagging.

Lessons from history

The economists identify four factors that separate hubs that recovered from those that lost their status: whether the risks recede, whether the institutional set-up survives, whether policymakers push through reforms, and whether a rival is waiting in the wings.

London and Frankfurt rebuilt after the Second World War, which came to a clear end. New York kept Manhattan's status after 9/11 as fears of further attacks faded, and Hong Kong recovered quickly from SARS in 2002-03. London's revival was sealed by the restoration of currency convertibility for non-residents in the late 1950s, which laid the ground for the Eurobond market, while Singapore answered the Asian financial crisis by accelerating financial liberalisation.

The losers saw their institutions erode or a rival take their business. Antwerp's skilled workers and capital fled to Amsterdam after the city fell in 1585. Shanghai lost out to Hong Kong after the Japanese invasion and the 1949 revolution, and Hong Kong in turn ceded ground to Singapore after the 2020 National Security Law. Beirut's civil war and political paralysis in Kuwait after the 1990 Iraqi invasion both helped Dubai itself rise. "History is littered with cases of financial centres losing their position to others," the note says.

Doing the right things

On institutions and reform, Dubai scores well. The New Civil Code, announced before the war and in force since June, "is widely seen as a welcome upgrade and modernisation of the legal framework governing contract enforcement", the economists wrote. Visa rules have been loosened, Etihad Rail's expansion to Dubai has continued through the war and the emirate has pushed hard into AI, from government services to access to top-end US technology.

How quickly perceived risks fade is less clear. Dubai has not faced a recorded Iranian attack since early May, but with a hardline regime in Tehran and sporadic US-Iranian attacks, the emirate is "in limbo". "For a hub reliant on mobile capital and labour, as Dubai is, perceptions of security matter as much as actual security," the note says.

Most indicators suggest concerns are easing. The General Directorate for Identity and Foreigners Affairs reported about 1mn new residency permits and another 1mn renewals in 1H26, although the economists caution that it is unclear how many came before the war and that Dubai's government has an incentive to play down safety concerns. Expatriates who left are returning or planning to, and Google searches on Dubai's safety have fallen sharply from their March peak. Airlines are coming back too: KLM will resume flights to Dubai from October 25.

Riyadh in the wings

The main rival is Riyadh, which is further from the conflict, although recent Houthi attacks show it is not immune. Saudi Arabia's Regional Headquarters Programme requires companies to base their Gulf headquarters in the kingdom or risk losing government contracts, and has drawn in lenders such as BNP Paribas. Riyadh this year lifted restrictions on foreign access to its financial markets and has a much larger domestic economy behind it.

Riyadh still lags Dubai by some distance in financial centre rankings, and "Saudization" - reserving well-paid jobs for Saudi nationals - may limit how far it can liberalise. "As things stand, the odds look favourable for Dubai," the economists wrote, citing its stronger starting position, a more attractive environment for foreign workers and the fact that security concerns are now affecting Riyadh as well.

Dubai's D33 agenda aims to double the size of its economy between 2023 and 2033 and put it among the world's top four financial hubs. Even if it slips, the economists argue, the decline would be relative, not absolute, because the forces that underpin its status - channelling capital, goods and services into the Gulf - have been dented but not undermined.

"Provided the security situation doesn't deteriorate much further, the most plausible downside scenario for Dubai is one in which growth is slower than would otherwise be the case, not one of outright falls in employment and activity," they concluded.