The United Arab Emirates (UAE) posted a current-account surplus of USD65 billion in 2013, and should maintain large, although reduced surpluses over the next two years thanks to elevated global oil prices.
 IHS expects slimmer, but still large external surpluses for the UAE in 2014 and 2015. We project the current account to edge down to a surplus of USD50.8 billion (12%) in 2014, as the trade surplus drops to USD127.1 billion under our baseline oil-price assumption of USD109/barrel. Merchandise exports are seen posting moderate growth of 6.3% in 2014, to USD402.5 billion, reflecting the constrained oil-export earnings. Non-oil exports should provide some underlying strength thanks to healthy demand from Asia, the UAE’s main destination for goods trade. Additionally, UAE re-exports, which weakened because of Western sanctions imposed on Iran, which previously had accounted for about 20% of UAE re-exports, could see some lift given the six-month interim accord between Iran and the P5+1 countries. Prior to sanctions, Dubai, which is the UAE’s trading hub and accounts for three-quarters of total re-exports, had strong trade and business links with Iran, but these shrunk considerably with traders and businesses coming under greater pressure and constraints in dealings with the Islamic Republic, especially regarding trade financing.
Strong domestic demand is expected to fuel import growth of 14.0% in 2014, with the import bill rising to USD275.4 billion. Meanwhile, tourism and hospitality services should see further growth in 2014 and remain supportive to the UAE’s current-account balance. If oil prices were to average USD100/barrel in 2014, the current-account surplus would narrow to USD43.7 billion (10% of GDP) this year. In contrast, if oil prices average USD120/barrel, the current-account surplus would rise to USD58.9 billion (13% of GDP) in 2014. Further narrowing of the UAE external balances is expected in 2015 as oil prices fall to USD102/barrel, reducing oil income and paring down the current account to a surplus of USD42.7 billion (9% of GDP). Certainly there is greater upside risk to the oil-price forecast now with the instability and violence in Iraq, but to date Iraq’s southern oil fields, pipelines, and export terminals all remain secure.
