First of all, the good news is you can drink here! Technically, it's only for non-muslims, but I've seen plenty of muslims in the bars here and at the liquor store.
Bars and licensed restaurants are only allowed in the hotels. So, all the nice restaurants in town are located within hotels. And most of the hotels have a large selection of restaurants wtihin their grounds. Anywhere else in town, the restaurants are unlicensed - and you can't BYOB. Since the hotels know that they have this monopoly, the booze and food is quite expensive. A glass of wine will be US$ 10-15, a pint of beer is $8-10, a martini is $12-15 (or more depending upon the vodka ordered). Also, food in these restaurants is usually quite expensive too. It would be difficult for us to leave a restaurant like this without spending at least $100 for the 3 of us.
However, if you go to an unlicensed place, you can find a cheap and delicious meal for $5-10/each. So, when we decide that we'd like to go out to eat, we always have the conversation about whether we want to go licensed or unlicensed. For every day eating out, we tend to try an unlicensed place, but it is hard to have an Indian curry without a Kingfisher beer!
Outside of hotels, you are allowed to drink if you obtain a drinking license. The drinking license is about AED 50 (I think) - about US$14. Only non-muslims are allowed to get a drinking license. Don't ask me how they know if you are muslim or non-muslim. I suppose they ask for some signature declaring your religion - I don't know. Without a drinking license it is illegal to drink outside of a hotel (even in the privacy of your own home).
If you have a drinking license, you can shop in the liquor stores here in Dubai. The duty on alcohol is 30%. Without the duty, the alcohol (beer, wine, and spirits) are pretty much the same price as what you would pay at home. However, the 30% duty makes it quite a bit more expensive.
However, we have found a liquor store in a nearby Emirate that is duty free and does not require the presentation of a drinking license. It is about 1 hour drive north from here. We went there about 2 months ago to stock up before Ramadan (they are closed for the month of Ramadan) and now Russell is saying that we need to go back to re-stock. Since it is duty free, the prices there are very comparable to what we'd find at home. The selection is pretty similar, too - except there is no Korbel brandy and the wines are from different wineries than we're used to (they emphasize European wines, not American). Since they don't require the presentation of a drinking license, many muslims go to this shop. It's quite funny to be standing in line next to a man in a dishdash with a shopping trolley full of booze.
Also, I travel quite a bit and am frequently coming through the airport where we can pick up duty free alcohol. Technically, the limit is 2 liters, but everyone at work says that they have never been limited in what they would like to buy (within reason). So, if I need to, I can stop at duty free on the way home and pick up something if we need it.
Both Turkey and Egypt (both Muslim countries) allow drinking in any restaurant. So, I do wonder if Dubai would soon be more free in granting licenses to restaurant. But probably the hotel owners here (many of whom are Emirati nationals) like their monopoly, so they would probably lobby to keep it this way.
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