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Something_s_Going_Seriously_Wrong_in_Dubai....
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00:04On the 28th of February at 4.17am, Dubai fundamentally changed. Debris from an Iranian
00:11missile struck the seafront side of the Fairmont Hotel, branded as one of the world's safest and
00:16most luxurious, and briefly turning Dubai's skyline into a war zone. In the following weeks,
00:22attacks like this have happened almost every day, hitting major landmarks and most crucially,
00:27the airport. And the aftermath has been immediate. Dubai's property market dropped 20% in a matter
00:33of days, hotel bookings are reportedly down 60%, and the city's wealthiest residents have reportedly
00:39been paying half a million dollars to evacuate the city by private jet. Around the world, Dubai has
00:45often been viewed as one of the greatest economic success stories of the 21st century. But what
00:50happens when the very thing underpinning that entire model slips? These attacks may finish
00:56tomorrow. But in many ways, the damage to the key fundamental of Dubai has been done. Trust is
01:02something which takes decades to build, and just seconds to destroy. So, is this game over
01:08for Dubai? Or can it come back even stronger? Alright, so if you've spent an ounce of time
01:14on the internet in the last five years, you've probably come across videos which look like this.
01:19I would go for a property in Dubai. Property in Dubai will never be just a trend.
01:24Do I see myself leaving? No. We live in one of the greatest cities in the world, and guys,
01:29I can assure you that it is safe here. I love it here. I can only speak for myself,
01:33but I'm so blessed to be here. Overly complimentary, or somewhat fanatic,
01:38about how good living there is, even despite recent attacks. Now, aside from the fact that
01:43you can't legally criticise the government, which brings a whole new meaning to the phrase
01:47I can't complain, it's fair to say that Dubai hasn't at least on the surface been successful.
01:53In the last 20 years, their population has more than doubled, and billions of dollars of foreign
01:57investment has flowed in. But despite this host of seemingly exclusively rich citizens,
02:02even before the current conflict between Iran, America and Israel, and now the Gulf states,
02:07Dubai's economic model was already under a bit of strain. Unlike many of its neighbours,
02:12Dubai is a bit of an anomaly. In many ways, it shouldn't be rich at all. This is due to
02:16the
02:16simple fact that it doesn't really have any oil. Yes, the UAE has the planet's seventh largest
02:22reserves, but Abu Dhabi controls around 90% of that. And even at its peak, Dubai was producing as
02:28much as Australia does today, and they're nowhere near an oil state. Dubai had enough to fund a few
02:33decades of development, not enough to live forever. Instead, they essentially had to speedrun the
02:39process of building a major global hub, all in the space of around three decades. And to be fair to
02:44Dubai, every time someone has predicted its downfall, the 2009 debt crisis, the oil price crash,
02:50COVID, they have been wrong. The leadership has been genuinely pragmatic, and Abu Dhabi has the
02:56financial firepower to backstop the emirate whenever it needs to. So why should this time be
03:00any different? The answer is that every previous crisis was either financial or global, meaning
03:06that Dubai wasn't uniquely disadvantaged. This crisis, however, is specifically about where Dubai
03:11is, and that's the one variable they can't change. Because speedrunning the development of a global hub
03:17is technically possible, but it relies on one thing above all else, stability. And this is also
03:23especially crucial in the Middle East. Due to the sheer magnitude of conflicts and wars that have
03:28happened here over the last 50 years, stability has become something of a commodity, which can make
03:33or break countries. This has also meant the title of Middle Eastern finance capital has been thrown
03:39around over the years. First, it was Beirut, until its civil war in the 1970s shattered that image
03:45overnight. Then Bahrain stepped in to fill that vacuum, positioning itself as the stable alternative,
03:50until eventually Dubai's rise rendered it as a modest player. Behind each succession was the same
03:56promise. We are the safe, open option in a region where safety can't be guaranteed. And Dubai executed
04:02that promise more completely than any of its other predecessors, and it was rewarded for that. Huge
04:07amounts of money have been pumped into the Emirate, along with people. Syrians displaced by civil conflict,
04:13wealthy families rattled by the Arab Spring, rich Russians fleeing sanctions after the Ukraine invasions.
04:19They all poured capital and talent into the Emirate. And in many ways, Dubai benefited from instability
04:25in other regions. But this time, Dubai isn't benefiting from someone else's instability. It's right at the
04:31center of it. In the space of 10 days, a tinderbox has been lit in the Gulf. And we've made
04:36a video on why this
04:37conflict probably won't end even if America pulls out. But the question for this video is simpler. Cities get hit
04:43all the time. New York was attacked on September 11. London had the 7-7 bombings. These places took the
04:50hit and
04:50carried on. So why would Dubai be any different? The answer is in who actually lives here. And to
04:56understand why, you need to understand that Dubai's economic model is really built on three layers.
05:01Each one was designed to attract something specific. And now each individual one is exposed. The first is
05:08people. The second is capital. And the third is property. In a normal city, these things are sticky,
05:14as in they're hard to move. In Dubai, all three are designed to flow freely, which is great,
05:18until that flow reverses. On September 11, 2001, New York City was put under exactly this kind of
05:25strain. The single most devastating terrorist attack in American history killed 3,000 people
05:31right in the beating engine room of US capitalism. And while people left in the direct aftermath of
05:36the attack, just five years later, the population of Lower Manhattan was 25% larger. The author Nassim
05:43Taleb has a term for this, anti-fragile. That is, not just surviving a shock, but coming back
05:48stronger because of it. But why? Why can New York survive where Dubai can't? Well, part of it has
05:54something to do with this. A person living in New York usually has citizenship. Or even if they don't,
05:59they're bought into the system. They vote. They pay taxes into a system that they can draw from.
06:04They have a mortgage in a market they're tied to for decades. Kids in schools with year-long waiting
06:09lists. You get the idea. Even if New York became objectively worse for a few years, the switching
06:14costs of leaving there are enormous. Their entire life is embedded into the system. This is mostly
06:20true of every major global city. London, Tokyo, Singapore. They're the product of geography,
06:26luck, and crucially, time. None of them chose what they became. Instead, they accumulated over
06:32centuries, and the people inside them accumulated with them. Deep roots that are difficult to simply
06:37disrupt. Dubai has the opposite structure. Emirati locals make up around 15% of the residents.
06:43The remaining 85% are expats. And for the vast majority of them, they are not citizens.
06:49And even if they wanted to be, you need 30 years of continuous residency, Arabic fluency,
06:54or you're mega wealthy and you're made a special case of. So the deal for the vast majority of
06:59citizens is transactional. Come here, earn well, pay no tax, and live in the sun. And that's why it
07:05works. But it means every resident is implicitly running a cost-benefit analysis every day. And the
07:11moment those costs change, even the perceived costs, like being hit by a missile, that equation
07:16shifts. Dubai has spent the last few years essentially running what amounts to a talent
07:20acquisition campaign at a nation-state scale. Through golden visa and virtual working programs,
07:25they've been able to attract a very specific type of person. Essentially high-earning, digitally
07:31native workers who are globally mobile. This is the Dubai archetype. The young, single-male,
07:36entrepreneur, crypto founder, carving their own path. However, the irony here is that the very
07:42selection criteria Dubai used to attract them, i.e. being easy to set up a business with no long-term
07:47commitments, is the same criteria that makes them vanish overnight. Dubai essentially optimized for
07:53exactly the kind of resident who is hardest to retain in a crisis. Now, if we take another look at
07:59this Dubai archetype, they're probably not going to leave right away. Their cost-benefit analysis still
08:04kind of works. And a few drone strikes doesn't fundamentally change the calculus for someone
08:09whose business is a laptop, and whose ties to Dubai are essentially a nice flat, a gym membership,
08:14and some friends. However, if we look at what Dubai was trying to build, the ambition was never to be
08:19a city of freelancers, but instead the next Singapore, a place where Goldman Sachs expands its
08:25regional desk. And that requires a completely different type of commitment from a completely
08:30different type of actor. A multinational doesn't decide where to put 500 employees based on weather
08:35and tax. They decide based on risk committees, insurance models, talent pipelines, legal infrastructure,
08:41and crucially, whether they can guarantee operational continuity over a 10 to 20 year horizon.
08:47And this is what the strikes have really exposed. Dubai has built a brilliant lifestyle city,
08:52and that's not nothing. But a lifestyle city and an economic hub are two very different things.
08:57And Dubai's main product is still fundamentally a lifestyle. And that doesn't compound in the same
09:03way that an economy does. It doesn't create the deep talent pools, the institutional infrastructure,
09:08and the decade-long commitments that turn a city into something self-sustaining. And to build that next
09:13layer, Dubai needed one thing above all else, the trust of serious institutional capital. Which brings
09:20us to the second layer of what's at risk in Dubai. There's a simple version of this argument.
09:24Wealth doesn't aggregate where there's instability. But the more interesting question is why. And why
09:30Dubai is more exposed to this than anywhere else. By the mid-2000s, Dubai's leadership had recognized
09:35something. Tourism and property could make the city rich, but it couldn't make it powerful. The
09:41cities that actually shaped the global economy, London, New York, Singapore, did it through finance.
09:47The real gravity was from controlling money. So Dubai set out to build a financial center from scratch.
09:53In 2004, they built the Dubai International Finance Center, designed to convince institutional money
09:59that Dubai was as safe a place as London to do business. Major firms like Deloitte opened regional
10:05offices there in 2009, and the DIFC was gaining credibility. But it hadn't yet crossed the threshold
10:11where institutional money treats it as a given. The same way nobody questions routing capital through
10:16London or Singapore. Dubai was essentially still in its audition phase, which becomes an issue when
10:22conflict breaks out. Let's imagine that you're a fund manager at a major asset management firm.
10:28You've got a regional office in DIFC. Maybe some exposure to golf equities, some real estate holdings.
10:34Personally, you might feel perfectly safe despite all the ongoing attacks. But above you, there is a
10:40risk committee who doesn't care about personal opinion or whether other influencers feel safe.
10:45Instead, they rely on models. And the moment a region gets tagged as an active conflict zone,
10:50the models change, usually telling them to reduce exposure, and soon.
10:54In the last couple weeks, Dubai's free zones have seen over $14 billion in cross-border outflows since
11:00February, with high net worth registrations down 38% as capital pivots to Singapore.
11:06For a financial center with centuries of track record, that kind of shock is survivable.
11:11London and New York have weathered wars, crashes and terrorist attacks,
11:14because institutional money already trusts them. The relationship has been tested and proven over
11:20generations. But Dubai's relationship with that money is still relatively new and being evaluated.
11:25Now, Dubai has actually been through something like this before. In 2009, Dubai World sought to
11:30restructure $26 billion in debt. The property market collapsed, and Abu Dhabi had to step in with a $10
11:37billion bailout. But this time, the question is different. As it's not whether Dubai is solvent,
11:41it's whether Dubai is safe, which is a much harder question to answer with a check.
11:46So that's people and capital. But there's also a third layer, where both of those dynamics become
11:52something you can actually measure. As Dubai has grown, there's been one thing that has come to
11:56both underpin and symbolize the growth more than anything else. Real estate. Property isn't just part
12:01of Dubai's economy. In many ways, it is the defining feature of Dubai's economy. Whilst Dubai does charge
12:08and make money from corporation tax, it goes without most of the other major taxes which governments
12:12use to generate money. Income tax, wealth tax, etc. Instead, the main way the government actually
12:18makes money is through transaction fees. So only when a property changes hands. In peak years,
12:23around 20-30% of government revenue is generated just from people continuously buying and selling
12:29property. And for a while, this worked spectacularly well. In 2004, foreigners were allowed to fully
12:35own property for the first time, and wealthy buyers from unstable or high-tax countries poured
12:40in. This also created a feedback loop of simple supply and demand, where as more buyers came in,
12:45prices rose and it fed itself. Now, whilst Dubai does have some institutional buyers in their property
12:51market, you have to remember a lot of the activity is comprised of singular individuals making
12:55discretionary lifestyle purchases, i.e. choosing Dubai over Lisbon or Athens or Singapore. The same kind
13:02of mobile transactional decision-making that defines Dubai's population also defines its property market,
13:08which means the revenue model the government depends on is only as stable as those buyers'
13:12confidence. And confidence is exactly what's been hit. In 2009, Dubai's property market dropped 40-50%.
13:19However, that was off the back of a credit crisis. People still wanted to buy property,
13:24they just couldn't finance it. And when credit loosened, that demand came back.
13:28This time, the financing exists. Rates are manageable. However, what could be hit is the
13:33demand. And that's an issue for a government whose revenue depends not just on prices, but on volume.
13:39There is a final point which is worth mentioning, which is Dubai's role as a transport hub,
13:44and in particular, its airline Emirates. Dubai's geographic position, halfway between east and west,
13:49is the original advantage that everything else is built on. And a number of key airlines have already
13:54suspended flights to Dubai for the foreseeable future. But the real issue isn't when these
13:58flights resume, but how the risk of this route gets priced in. Airlines don't just need airports
14:03to be open. They need routes to be insurable at rates which make them commercially viable.
14:08When insurers reprice aviation risk for a conflict zone, the cost of running that route increases.
14:13So even after the airport stops getting attacked and is open as normal, flying through Dubai might just
14:19have become slightly more expensive or slightly less convenient than alternatives. And for a hub
14:24whose entire model depends on being the easiest connection point between continents, slightly less
14:29convenient is a serious problem. Now, to be clear, Dubai isn't going to collapse overnight. There's too
14:35much infrastructure, too much golf money behind it, and too much momentum for that. The conflict could
14:40end soon, and Abu Dhabi will almost certainly backstop Dubai financially if it needs to. They've done it
14:46before. And the government will offer incentives, extend visas, and do whatever it takes to retain
14:51capital. And much of that probably will work. But none of that answers the deeper question.
14:56Because Dubai's competitive advantage was never just financial. It was perceptual. It was never the
15:01only option, just the combination of the best options in one place. Low tax, good weather, and
15:07geographic position. And above all else, safety. However, each one of those things exists somewhere else,
15:13too. No single city replaces Dubai. But it doesn't need a single replacement to be in trouble.
15:18It just needs each advantage to be slightly better served somewhere else, for the bleed to be
15:23distributed. A city that was growing at the speed of a startup begins growing at the speed of a normal
15:28city. And for a model that needs continuous, exceptional growth, where megaprojects need filling,
15:33the airline needs passengers, and the government needs transaction fees, normal might not be enough.
15:38Dubai sold the world a vision of the future. But the future has a way of finding somewhere else to
15:44go.
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