The day the oil runs dry

For centuries civilisations have been built on trade. Athens on silver, Rome on wine and olive oil. The UAE, however, is built on a different kind of oil. But its reserves cannot last forever, which has seen two cities embark along very different paths, as Jamie Stewart reports.

The Kempinski Emirates Palace, Abu Dhabi, is home to an exhibition showcasing the under-construction Saadiyat Island development. An exhibition that has been toured, among many, by one George W Bush.

The exhibition is bordered by a wall covered with facts and figures concerning the growth of the UAE. Hidden among this wall is a white board sporting a series of bar charts that may have raised the eyebrows of a keen-eyed Bush on his January visit to the capital.

As the chart states, in 1975, 21.2% of the UAE's gross domestic product was generated by the service sector, while 67.7% came from the mining and oil industries. By 2005, the service sector accounted for 42.1%, while mining and oil accounted for just 32.8%.

Oil, as we know, cannot last forever. Both Abu Dhabi and Dubai have begun to demonstrate that it's time to begin laying the groundwork within which their societies can operate without the financial benefits and guarantees that oil brings to the respective populations.

Abu Dhabi, through such developments as the Louvre and the Guggenheim, has begun to signal its intentions through a gradual shift towards cultural tourism, pursuing its responsibilities to provide its people with cultural amenities worthy of a capital city.

One hundred and twenty kms down the road lies Dubai. The city of man-made islands, super-tall skyscrapers and indoor ski slopes. The city in which you can bob through a shark tank on an inflatable ring is planning to diversify along a very different path.

But there is a fine line to tread between the opening up of a society to a world of globalised traditions, and remaining sensitive to regional traditions. Treading this line becomes even more perilous when the source of income that has been relied upon for generations threatens to run dry.

The peak oil question

In 1956 Marion Hubbert published his theory on the capacity of oil fields and natural gas reserves, correctly predicting that US oil production would peak between the late 1960s and early 1970s.

Hubbert's predictions were based around a bell-shaped curve, which came to be known as the Hubbert Curve, and the peak as "peak oil." By theorising that oil production would peak when known reserves were at their highest, Hubbert was able to track the approximate time frame for depletion.

Today, experts are in wide agreement that the point of global peak oil is upon us. In June, Thomas Pickens, BP Capital Management hedge fund chairman, said, "I do believe we have peaked out at 85 million barrels a day globally."

With a little more urgency, a Financial Times report last year warned that the world would face an oil crisis "within the next five years." With words such as "crisis" now making their way into the oil man's vocabulary, just how long do Dubai and Abu Dhabi have left?

Measuring oil reserves is no exact science, and even proven reserves can only be estimated. The BP statistical review of world energy, published last June, estimated the UAE's proven oil reserves to be 97.8 billion barrels.

Reports are in general agreement that Abu Dhabi has considerably more time on its hands than Dubai until the oil runs dry. Estimates say that Abu Dhabi's reserves should last about 100 years, while Dubai appears to be facing a more urgent scenario, with estimates ranging from 10 to 15 years.So with both cities embarking on a similar journey, but in very different directions, which path will lead from oil dependence to sustainable resplendence? And if both paths are destined to arrive at the same destination, why the stark difference in the planned evolution of both cities?

Capital investment

Central to the Abu Dhabi plan and reflective of the ambitions of the city is Saadiyat Island. The master-planned development, 500m off the coast of Abu Dhabi, will contain seven districts, including Eco-Point, The Wetlands and, most tellingly, the Cultural District.

As senior development manager at Tourism Development and Investment Company (TDIC), Kathy Pasalich oversees the development of Saadiyat Island from design to completion.

"We will have the museums and other cultural amenities on the island. Gallery space will encourage young artists to come and reside and base their galleries on Saadiyat, and we will include provision for performing arts. We will promote the whole gamut, including things like art theatre."

As a measure of the city's push towards a cultural renaissance, TDIC has assembled its own advisory group. If culture is man-made, then it's the job of this group to select the broadest and most indicative range of what man has to offer.

"The remit of our dedicated cultural facilities team is to look not just at Saadiyat Island but how the cultural amenities fit into Abu Dhabi as a whole," Pasalich explains.

"They are looking internationally at what has been done. We are also looking at how to incorporate the culture and heritage of Abu Dhabi."

Abu Dhabi is aspiring to rise in the estimation of the world's culture-vultures onto the same plateau occupied by Paris, Berlin, London, New York and Sydney - the cultural equivalent of conquering Everest on a particularly windy day.

But in true UAE style, Abu Dhabi has embraced the challenge. Currently in the design stage and soon to begin construction within the cultural district of Saadiyat Island are: Louvre Abu Dhabi by Jean Nouvel; Guggenheim Abu Dhabi by Frank Gehry; Performing Arts Centre by Zaha Hadid; Maritime Museum by Tado Ando; and Sheikh Zayed National Museum.

By the time such a roll call of artisan legends is complete, tourism in Abu Dhabi may never be the same again.

But the battle for the tourist dollar will not only be fought across oceans. In Dubai, as ever, the wheels of construction are turning at a formidable rate.

So is there any recognition that a storm of competition may be brewing between the emirates? Apparently not when admitting such could get you in a whole heap of trouble.

"We love Dubai," comments Pasalich's PR representative when the subject arises. "It's all happy families," Pasilich adds with a laugh.

But in the case of Dubai, the most important project with regards to the city's economic diversification ambitions, is Al Maktoum International Airport. Upon completion, it will,be the biggest airport in the world, capable of handling 120 million passengers annually.

It will also be just 75km north-east of Abu Dhabi International Airport. So just how long can these apparent "happy families" remain happy?

Compete or complement?

Dubai's new airport has stimulated a glut of construction activity to take advantage of the 120 million capacity. Dubailand, the second-largest master development in the GCC behind KSA's King Abdullah Economic City, is in the right spot geographically to benefit from the airport's arrival.Rashid Galadari, chairman of GIO Developments, is currently developing two towers in the City of Arabia, Dubailand. Galadari offers a perspective on Dubai's development plans from within the emirate.

"I don't want to sound like a politician, but Dubai has created a very good mix. It has shown the world that we are not all extremists, we are not all psychopathic. The truth is, it has shown that there can be a balance."

Dubai's recognition of its history is in its built enviornment centres around Old Bastakia district. Dubai Properities is also developing Culture Village at present on the banks of Dubai Creek. Such developments reflect the city's traditions, which in turn reflect its historical and cultural limits.

"There are limits wherever you go," Galadari says. "If you run naked in the middle of the street then you are going to get arrested."

There would appear to be something of an unspoken rule within the industry. Regardless of the evidence, Dubai and Abu Dhabi do not compete - they complement.

Despite that, the two cities are separated by a mere 120km, and each is gearing itself up to exploit the international tourism market for decades to come.

But you cannot find an admission of competing interests from anybody involved in the process.

Samir Pradhan is senior researcher for the GCC economics programme at the Gulf Research Centre. Are we seeing the dawn of a new competitive era in the UAE, or is this part of the larger master plan?

"In one sense, Dubai is not a clash of civilisations, but rather a confluence of civilisations," says Pradhan. "Dubai has maintained a mix of all cultures while maintaining its Islamic identity and it has given a liberal way of life to all. It's a good thing - a good balance."

States of transition

As Abu Dhabi considers its diversification potential backed by a safety-net of oil reserves for the next century, Dubai has for many years shown more aggression in its pursuit of a construction-based economy.

Balancing this need to diversify beyond its Islamic origins has proved a challenge, particularly when viewed against the backdrop of world events over the past decade.

"The whole of society itself is in a state of transition, where one has to look at one's identity," says Pradhan. "After 9/11, Islam got a bad name in the West.

"But these are progressive societies. They have achieved economic growth, while at the same time they want to have their own identity."

Whether or not a city's economy can be constructed to accommodate post-modern, globalised markets while remaining sensitive to traditions that have evolved over 1400 years depends largely on personal points of view, experience and motivation.

Though one thing is for sure - neither Abu Dhabi nor Dubai could be accused of sitting back and watching the world go by. On the contrary, despite adopting different directions, the competing interests of one emirate could ultimately prove to be the driving force behind the other.

The UAE is constructing for a future without oil. The challenge lies in building the traditions of the past, into two different cities that are equally well equipped for the future.

Treading the tightrope

Dubai Creek has been a place of trade since the city's early days. It was at the banks of the creek that the first structures were built, settling the city that would grow into the modern Dubai we know today.The pace of change has been frantic, particularly over the past decade, as Dubai has fought to position itself within the globalised economy for a future with less reliance on oil.

Despite this rapid modernisation, there are some traditions that have survived. And the ebb and flow of life around Dubai Creek is one of them.

For decades Iranian merchants have been plying their trade along the waters of the creek, collecting goods for delivery across the Arabian Sea to the shores of Iran and vice-versa. And despite the best efforts of a particular global super-power, a visit to the creek is enough to see that such trade continues to this day.

According to the Iranian Business Council Dubai (IBCD), established in 1992 to strengthen and promote the commercial relationship between the UAE and Iran, the city's Iranian population hovers around the 400,000 mark.

The US Energy Information Administration says that trade with Iran accounts for 20% to 30% of Dubai's business. IBCD adds that there are 8000 - 9000 Iranian businesses in Dubai.

Consensus

There is consensus among Iranian business leaders that a prosperous Iran would assist continuous, sustained growth among the Iranian population in the UAE. This would have a positive knock-on effect for the construction industry.

Everybody needs a place to live, be they rich or poor, so any population growth is good for the industry and the population projections of the Dubai government.

The Iranian population of the UAE has played a vital role in the Emirate's collective economic growth, and, if given the chance, will continue to do so for generations to come.

"People like places that are more in touch with the free market," IBCD board member Hamid-Reza Hamidi told Construction Week. "This is why Iranian business people tend to come to Dubai."

It is therefore in the best interests of the UAE to continue trading with a fit and prosperous Iran, and to keep building homes fit for the coming generations of merchants attracted by the free trade that Hamidi talks of.

It is within this economic framework that local buisness leaders say the UAE must tread a political tightrope worthy of any circus performer, because a continued healthy relationship with the US is central to the economic diversification ambitions of the Emirates.

Only last week Dubai Chamber of Commerce and Industry said that trade between the Gulf and the US reached US $47.8 billion in the second quarter, jumping 60.1 percent on the same period last year.

Since 1995, the US has been attempting to enforce sanctions prohibiting American firms and their foreign subsidiaries from conducting business with Iran. In theory, no goods of American origin should be winding up on Iranian soil.

In order to maintain good relations with the US, the UAE has a self-imposed duty to enforce these sanctions. Yet healthy relations with Iran are also of vital importance. It is the nation, after all, that accounts for some 30% of UAE trade.

Gulf Research Centre senior researcher on the GCC economics programme, Samir Pradhan, has been studying the economies of the GCC for over a decade. He stresses the need to strike a balance in international relations with both integral trade partners.

"Iran is a close neighbour," Pradhan says. "And at the same time we have close ties with the US. The UAE should manage a balance between the two (because) the main oil trade route is very close to Iran. The UAE must manage successfully to avoid disruption to that route."

Business as usual?

The IBCD's Hamidi says that sanctions must be viewed within the context of globalisation, and that they pose a problem for people beyond the national borders of Iran.

"It is foolish to deny that sanctions are hurting business," Hamidi admits. "On the other hand, sanctions are affecting everybody. They are affecting Europeans who consequently pay more for a gallon of petrol.

"We are always talking about a global village and globalisation, but in our minds we find it difficult to believe in that. We think that if we are squeezing somebody it is only him that is being squeezed, but in truth it is not like that. Everything is inter-related."

The UAE has performed an admirable balancing act for the past 13 years, maintaining profitable relations with both Iran and the US. It may yet be forced to tread the fraying tightrope between for some time to come.