Price rises are expected to affect consumers later this year as disruption from the ongoing Iran war continues to affect energy markets and global supply chains, analysts have said.
Consumers in the UAE may not see an immediate inflationary impact in the country, the Arab world’s second-largest economy, but expectations are for it to happen in the longer-term.
“We believe that the government would try to hold the price for some time, so that people are not additionally burdened by higher inflationary pressure,” Chiro Ghosh, group head of research at Bahrain-based Sico Bank told The National.
“But eventually, they would like to have a free trade market, so they have to be finally passed on to the final users.”
The UAE increased fuel prices for the month of April, with the price of diesel up more than 70 per cent over the previous month to Dh4.69 ($1.28) per litre, while petrol prices rose by more than 30 per cent.
This is the second month of rises in a row in the Emirates in line with global prices, which have been surging since the start of the Iran war on February 28, as a result of supply disruptions in the Strait of Hormuz.
Oil prices rose by a record 60 per cent in March as the war, now in its fifth week, continues, with Tehran carrying out retaliatory strikes on Gulf infrastructure, including energy sites in the UAE and Qatar.
Delayed impact
Higher fuel costs would increase logistics and transportation expenses, affecting sectors including taxis, car rentals, restaurants and aviation, Mr Ghosh said.
Initially, consumer spending on essentials might remain stable, but discretionary spending and larger purchases like buying cars and mortgages will fall, he added.
“Higher retail fuel prices will contribute to higher inflation in the transport component of the inflation basket,” said Edward Bell, group head of research and chief economist at Emirates NBD.
“Whether or not the higher fuel prices push up headline inflation depends on if we see local businesses pass on their own higher costs to consumers.” Consumer goods see price rises at a slower pace than fuel “so the impact of the increase in fuel prices will likely be felt over several months”, he added.
Inflation in the UAE averaged 1.3 per cent in 2025, supported by lower transport and textile costs and favourable trends in food prices, according to a March report from the Central Bank of the UAE. Inflation is expected to be moderate in the short-to-medium term, projected to reach 1.8 per cent in 2026 and 2 per cent in 2027, it added.
Last month, S&P Global affirmed UAE’s “AA/A-1+” ratings, with a stable outlook on the back of the government’s strong fiscal and external positions despite the regional conflict. It also expects inflation to remain modest, at about 1.5 per cent, until 2029, based on its forecast of lower oil prices and centrally administered prices of several basic goods.
Industries impacted
“This might be a short-term shock, or a short-term inflation,” Noureldeen Al Hammoury, chief market strategist at Equiti Group, told The National.
“Tourism and service services sector, will be impacted, with the prices of ticketing going to be much higher than it was, until things calm down [as a result of higher jet fuel].”
Construction and shipping costs are also expected to rise, he added.
Gulf countries depend heavily on shipping for the import and export of goods, with most passing through the strait, which remains effectively shut.
Last month, Saudi Arabia and the UAE unveiled trading routes to bypass the strait and connect Sharjah with Dammam, as supply disruptions continue.
“The immediate impact on UAE consumer price inflation in April from price hikes for petrol and diesel is an increase of roughly 1.3 percentage points,” wrote Ralf Wiegert, head of Mena Economics at S&P Global Market Intelligence.
“However, second-round effects – mainly diesel-driven freight costs – raise consumer prices further.”
He also expects a negative impact on consumer spending in the second quarter as inflation rises in the country.
Patrick Albrecht, head of advisory at Mirabaud Middle East, said transportation costs would rise in the short-term, affecting imports into the country amid higher fuel prices.
“On the medium-long run, we can reasonably see prices falling due to the absence of tourists and absence of new expat influx since the first are the drivers of consumption and the latter the driver of the highest living costs, namely housing and education,” he said.
