IRAN AND DUBAI LEAD THE WAY103The need for replacement benefits may not be universal, especially for
less ambitious reforms that eliminate a smaller portion of the subsidy.
Just across the Gulf from Iran, Dubai pushed through a modest increase
in energy prices without offering any incentive. The public reaction was
altogether different.
DUBAI STEPS BACK FROM THE BRINKIn 2009, Dubai was in trouble. The city had just capped off a six- year
boom that had not only cemented it as the region’s premier non- oil-
based economy but turned it into a destination for jet- set opulence. As
the emirate’s slate of projects grew more outlandish and expensive—
palm- shaped islands dredged from the sea and forests of gleaming
office towers— its debt grew to alarming levels. When the 2008 global
financial meltdown came, Dubai succumbed. The financial crisis trig-
gered a sudden crash in Dubai’s real estate market, and in 2009 the city
lapsed into a painful economic recession.
Most alarming was the declaration by a Dubai- owned conglomerate
that it was unable to meet terms on a portion of the emirate’s $100 bil-
lion or so in sovereign debt. The November 2009 “debt standstill”
announcement ignited worldwide fears that the global financial crisis
could intensify. The emirate narrowly avoided default by securing a bail-
out from neighboring Abu Dhabi and renegotiating repayment. The
crisis pushed Dubai into austerity mode. Policy makers imposed tough
spending restrictions to stabilize the city’s finances, cancelling projects
and firing masses of expatriate workers. In this context, ruling elites
decided to stanch the bleeding caused by longstanding energy subsidies.
Unlike neighboring Abu Dhabi, Dubai never had much oil. When
Dubai struck oil offshore in 1966, there was some promise of oil wealth,
but when these oilfields were assessed in the mid- 1970s, Dubai learned
that it held less than 4 percent of the UAE’s roughly 100 billion barrels
of oil. Nearly all the rest was in Abu Dhabi (which is also the largest
emirate by far in terms of land area). The emirates of Sharjah and Ras