The overall performance of the UAEs economy is heavily dependent on oil exports, which account for over 30 percent of total gross domestic product (GDP). Growth in real GDP was 7.2 percent in 2005, partially due to higher crude oil prices. For 2006, real GDP growth is forecast to slow to 5.1 percent. The non-oil segment of the UAEs economy also is experiencing strong growth, particularly the petrochemicals and financial services sectors. The UAE is a federation of seven emirates - Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras al-Khaimah, and Umm al-Qaiwain. Political power is concentrated in Abu Dhabi, which controls the vast majority of the UAEs economic and resource wealth. The two largest emirates -- Abu Dhabi and Dubai -- provide over 80 percent of the UAEs income. In June 1996, the UAEs Federal National Council approved a permanent constitution for the country. This replaced a provisional document which had been renewed every five years since the countrys creation in 1971. The establishment of Abu Dhabi as the UAEs permanent capital was one of the new frameworks main provisions. The current head of state, Sheikh Mohamed bin Rashid Al Maktoum, took office in January 2006, following the death of his brother Sheikh Maktoum bin Rashid al-Maktoum.

In recent years, the UAE has undertaken several projects to diversify its economy and to reduce its dependence on oil and natural gas revenues. The non-oil sectors of the UAEs economy presently contribute around 70 percent of the UAEs total GDP, and about 30 percent of its total exports. The federal government has invested heavily in sectors such as aluminum production, tourism, aviation, re-export commerce, and telecommunications. As part of its strategy to further expand its tourism industry, the UAE is building new hotels, restaurants and shopping centers, and expanding airports and duty-free zones. Dubai has become a central Middle East hub for trade and finance, accounting for about 85 percent of the Emirates re-export trade.  The UAE has been a member of the World Trade Organization (WTO) since 1995, and has one of the most open economies in the region. It began negotiations in March 2005 with the United States on a possible free trade agreement.

The UAE and Iran continue to dispute the ownership of three islands, Abu Musa and the Greater and Lesser Tunb Islands, which are strategically located in the Strait of Hormuz. All three islands were effectively occupied by Iranian troops in 1992. The Mubarak field, which is located six miles off Abu Musa, has been producing oil and associated natural gas since 1974. In 1995, the Iranian Foreign Ministry claimed that the islands are an inseparable part of Iran. Iran rejected a 1996 proposal by the Gulf Cooperation Council (GCC) for the dispute to be resolved by the International Court of Justice, an option supported by the UAE. In early 1996, Iran took further moves to strengthen its hold on the disputed islands. These actions included starting up a power plant on Greater Tunb, opening an airport on Abu Musa, and announcing plans for construction of a new port on Abu Musa. In the dispute, the UAE has received strong support from the GCC, the United Nations, and the United States. Although Iran remains a continuing concern for officials in Abu Dhabi, they have chosen not to escalate the territorial dispute. Iran is one of Dubais major trading partners, accounting for 20 percent to 30 percent of Dubais business.