Since independence, the UAE has maintained an open, free market system with close links to the international economy. Historically the UAE's prime industries were pearling and fishing. Since the discovery of oil in the 1960s, the federation's closest trading partners have been industrialized nations in Europe and Asia, primarily France, Germany, Great Britain, Italy, Japan, India, and South Korea. The UAE exchanged crude oil for machinery, cars, transportation equipment, and food. Japan is critical since it usually accounts for a third of UAE petroleum exports: the EIA estimated that 80 percent of the UAE's crude oil exports in 1999 went to Japan and other east Asian countries. The UAE's modern infrastructure and port facilities also have allowed it to serve as an important re-export and transportation hub, particularly for Iran through Dubai.
Generally the health of the UAE's economy has depended on the price of oil and the economic vitality of its leading trading partners. At the same time, the federation's economy also has been impacted adversely by the politics of the Arabian/Persian Gulf region. Because of the UAE's perceived support for Iraq in the Iran-Iraq war, Iran attacked UAE oil tankers in the Arabian/Persian Gulf
|Trade (expressed in billions of US$): United Arab Emirates|
|SOURCE: International Monetary Fund. International Financial Statistics Yearbook 1999.|
and compelled the UAE government to seek the protection of the U.S. Navy through a reflagging operation (UAE ships hoisted the U.S. flag and carried U.S. servicemen). The UAE and Iran also continue to dispute ownership over 3 islands in the Arabian/Persian Gulf: Abu Musa and the Greater and Lesser Tunbs. During the Gulf War, the UAE sought a close relationship with the United States as a way to protect the federation's economic assets from Iraqi threats. The UAE also benefited from the relocation of a number of businesses from Kuwait to the federation, especially to Dubai. Still, it is important to remember that the UAE's dependence on desalination plants for power and water ensures that the state's economy is especially vulnerable because economies of scale dictate that desalination plants should be large and located on the coast.
Since the Gulf War and the collapse of the Soviet Union, the UAE has faced new competitors and steadily increased its trade with China, the United States, and the former Soviet republics. Throughout the first two-thirds of the 1990s, large numbers of Russians traveled to the UAE and purchased products for sale at home, often using small transport planes or traveling through the emi-rate of Sharjah. U.S. firms also have made steady inroads into the UAE, helping the United States overtake Japan in 1996 as the leading exporter to the federation. U.S. exports to the UAE increased by 14.5 percent alone in 1999. Finally, erstwhile GCC-ally Saudi Arabia fought hard— but ultimately failed—to steal the UAE's share of the Japanese petroleum market throughout the late 1990s.