Despite efforts to diversify the UAE's sources of income, revenue from oil exports will still be the pivot around which its economy will revolve for several decades, experts say.
Oil will also remain key to the UAE's growing regional ambitions and global influence.
Dalton Garis, associate professor of Economics and Petroleum Market Behaviour at the Petroleum Institute, Abu Dhabi, said: "Oil underpins the growth potential in the UAE because it allows the country to provide seed money to be put at risk for the development of new enterprises. As well, the oil resources provide a definite source of income as long as the oil markets cooperate."
Before oil was discovered in the 1950s, the local economy was dependent on fishing and a declining pearl industry. Economic transformation began in 1962 when Abu Dhabi became the first of the emirates to begin exporting oil.
By coincidence, global oil prices began to rise shortly after the formation of the UAE in 1971, and have continued to rise since due to the world's ever increasing energy needs.
The UAE has the world's fifth largest proven oil reserves, which amount to 97.8 billion barrels of crude oil, more than 90 per cent of which is in Abu Dhabi. The UAE's natural gas reserves are 212 trillion cubic feet (tcf), the fifth largest in the world after Russia, Iran, Qatar and Saudi Arabia.
Increased domestic consumption of electricity and growing demand from the petrochemical industry have provided incentives for the UAE to increase its use of natural gas. Abu Dhabi National Oil Company (Adnoc) has spearheaded the UAE's oil and gas exploration and production efforts.
According to industry estimates, the country's oil will last another 90 years at current production levels if no new oil discoveries are made. The UAE's current oil output is about 2.5 million barrels per day (bpd) though its sustainable production capacity is around 2.7 million bpd.
"Oil income has made a major contribution to the UAE's economic growth. It has helped build modern infrastructure in the country. Though the contribution of the non-oil sector in the overall gross domestic product [GDP] of the country has been on the rise, major economic activities in the country have been financed by oil export revenues," said Dr Mohammad Amerah, economic adviser for the Ajman Chamber of Commerce and Industry.
According to the policy agenda for the emirate of Abu Dhabi: "Current targets are to expand oil and gas production capacity significantly. This will include increasing oil production capacity up to 4 million barrels of oil per day, as well as increasing domestic gas supplies via the development of sour gas reserves and the optimisation of existing sweet gas production."
It's estimated that Abu Dhabi is likely to accumulate an investible surplus of $800 billion (Dh2.93 trillion) by 2020 due to massive inflows of oil revenue. The estimates are based on an average price of $50 per barrel between 2005 and 2020.
The contribution of oil to the GDP of Abu Dhabi in 2009 fell to 49 per cent, according to figures released by Statistics Centre — Abu Dhabi (Scad). The lower contribution of oil to the emirates' GDP was due to the robust performance of other contributors to its GDP, mainly the services industry and the manufacturing sector.
The oil exploration efforts in the country have yielded fruit, nonetheless.
Last year Dubai announced a new oil discovery which gave a shot in the arm to the local petroleum exploration efforts. Dubai's oil production has been falling for years and its current output is less than 100,000 barrels per day. Dubai's first oil field was discovered in 1966 and the first production was from the Fateh field in 1969. A second oil field, Falah, was discovered in 1972 and production started in 1978.
However, Garis warned that the risk with oil is that one day its prices may go so high that people are forced to look for some real alternatives to meet their energy requirements.
"If that happens, the global oil demand may diminish. As long as oil prices gradually increase, by say $10-$15 per barrel a year, it would remain the first-best choice as a fuel for a long time to come," he added.
Besides being a key global oil producer, the UAE is also focusing on becoming self-sufficient in refining and becoming a hub for oil product exports.
The $10-billion Ruwais expansion of refining capacity at Abu Dhabi Oil Refining Company (Takreer) is on schedule and the project is scheduled to be completed by the end of 2013. The project's completion would increase Takreer's refining capacity by 417,000 bpd and nearly double its production of transportation fuels.
The combined refining capacity at Takreer's two refineries in Abu Dhabi is currently about 490,000 bpd. The expansion of its Ruwais facility will boost Takreer's overall refining capacity to nearly 1 million barrels of refined products per day.
Besides, the $3.3-billion Habshan-Fujairah oil pipeline to be commissioned later this year would give Abu Dhabi a direct access to the Indian Ocean for its oil exports and the option of bypassing the critical Strait of Hormuz.
The new pipeline will ensure safe flow of the UAE's crude oil exports in the event of any disturbance in the Strait of Hormuz, which Iran last year threatened to disrupt if Western powers resorted to military action in the context of the row over Tehran's nuclear programme.
The 370-kilometre pipeline owned by the International Petroleum Investment Company (Ipic), an investment arm of the Government of Abu Dhabi, will carry around 1.5 million barrels per day of crude oil from the onshore Habshan field to the port of Fujairah.