The eruption of mass unrest that swept across North Africa and the Middle East in 2011, the so-called “Arab Spring,” produced barely a ripple within the UAE, thanks in large part to a two-pronged government strategy that entailed generous spending of the country’s oil wealth on social programs and a zero-tolerance approach to political dissent. The more recent threats posed by the emergence of ISIL and an Iran-backed insurgency in Yemen have required President Khalifa Bin Zayed Al Nahyan’s government to revise that formula somewhat, most notably by taking an active role in international military operations aimed at weakening the fighting capacity of both ISIL and the Houthi rebels.
The driving force behind the UAE’s newfound regional assertiveness is Mohammed Bin Zayed Al Nahyan, the deputy supreme commander of the armed forces and the first in line to succeed Khalifa as emir of Abu Dhabi and president of the UAE. Mohammed has made a point of building a close relationship with the Saudi defense minister, Mohammed Bin Nayef Al Saud, who is the son of Saudi Arabia’s new king, and a rising figure in the royal pecking order, having been named deputy crown prince upon his father’s accession to the throne earlier this year.
While expanding the scope of its efforts to combat radicalism, the government has also scaled back the social spending component of its political strategy, although in the latter case, the revision reflects necessity, rather than choice. A sharp decline in global oil prices since mid-2014 has contributed to a large decrease in state income, which is projected to shrink by more than 20% (year-on-year) in 2015.
The government has seized the opportunity presented by low oil prices to initiate a gradual reduction of expenditures on fuel subsidies. The IMF estimates that the cuts will have little effect on the budget initially, but the savings is projected to rise to at least 0.6% of GDP over the medium term, and possibly higher, depending on the market price for oil. Eliminating other fuel subsidies, such as for natural gas, could increase the total savings to as much as 3% of GDP over the longer term. However, it is unclear how far the government wants to move on slashing subsidies. Indeed, there are reports that officials are shifting their attention to developing new sources of revenue, possibly including a corporate tax and a value-added tax.