Growing Economic Rivalry Puts Saudi-UAE Alliance To Test

Growing Economic Rivalry Puts Saudi-UAE Alliance To Test

The OPEC this month was on the verge of a new crisis similar to the one that jeopardized oil markets a year ago when a disagreement between Russia and Saudi Arabia over proposed oil-production cuts amid the COVID-19 pandemic led to a war of prices where oil value fell more than 60%.

This time, a disagreement between the United Arab Emirates (UAE) and Saudi Arabia over OPEC policy and the desire of UAE to increase its production limits left energy markets in limbo. The disagreement between the two traditional Gulf allies caused talks between the world’s biggest oil-producing nations to be abandoned and pushed oil prices to a six-year high.

Luckily, behind-the-scenes diplomacy took only two weeks to resolve the standoff and clinched a deal to raise the production limits imposed on Iraq, Kuwait, Russia, Saudi Arabia and the UAE next year. This resolution is expected to boost their production by 2 million barrels per day by the end of this year, ending a dispute that roiled oil markets.

The rare public disagreement between the two large economies points to a growing economic rivalry, which only looks set to intensify. Several regional analysts highlight, at the same time, a growing political gap between the two allies, that may have dire consequences on the regional political and economic scenes.

Alliance Born In Heaven

For a long time, the two countries united their stance to push back what they saw as common threats. Their alliance has been one of the most durable alliances in Middle East politics in the last years. The alliance was more consolidated to become a strategic one when Saudi Arabia’s King Salman bin Abdulaziz came to power with his son Mohamed bin Salman, who became along with the Crown Prince of Abu Dhabi Mohammed bin Zayed the major players in this alliance.

The alliance was the core of a political axis that was joined by Egypt and Bahrain to deter what they perceived to be hostile behaviors of Iran, Turkey and Qatar.

The UAE was the most prominent member in the military coalition of several Arab nations that was led by Riyadh to intervene in Yemen in 2015 against the Iran-aligned Houthis who ousted the government from the capital, Sanaa.

The coalition, which was supported by the US and other western nations, has imposed a blockade of Houthi territory, but at the same time has pushed around half of the Yemeni population to the brink of starvation and faced rebuke of international humanitarian watchdogs.

The two countries also led a blockade against Qatar in 2017 to curb Doha’s ambitious foreign policies that included supporting Islamist groups such as Muslim Brotherhood and its friendly relations with Iran.

The blockade led Doha to consolidate cooperation with Turkey, which rushed to its aid with food and medical supplies that had been in short supply during the embargo.

The rivalry with Turkey and Iran were the main drivers of Saudi-Emirati policies on many other fronts including Syria, Iraq, Lebanon, and Libya. The two countries also maximized joint pressure on United States Administration for adopting a harsher stance on Iran.

However, the growing divergence between the two countries on the conduct of regional affairs, economic diversification, or even oil policy in the last couple of years forms a strong contrast to the close bilateral coordination seen at the beginning of the Yemen campaign in 2015.

The amounting criticism and Houthis counterattacks on several fronts pushed Saudis and Emiratis to seek a way out of the conflict. However, everyone tried to do so in his own way.

Today, we can see a rising competition between the two allies in Yemen where the UAE supports a separatist movement that wants renewed independence for South Yemen, while Saudi Arabia still supports the Yemeni Government and seeks a peace agreement with Houthis.

Riyadh’s recent reach to Qatar and Turkey also became a deteriorating factor between Saudi Arabia and the UAE, who recently took a solo decision to normalize relations with Israel.

Therefore, Saudi Arabia has amended its rules on imports from other Gulf Cooperation Council (GCC) countries to exclude goods made in free zones or using Israeli input from preferential tariff concessions; a move that is seen as a challenge for the UAE’s status as the regional trade and business hub. Saudi Arabia has been increasing pressure on international firms to shift their Middle East hubs to the kingdom.

In the latest round of deterioration between the two countries, Saudi Arabia moved to ban its citizens from the UAE, citing pandemic concerns.

Some can see the increasing economic competition between Saudi Arabia and the UAE as a reflection of the growing political differences. However, others see that the Kingdom is seriously trying to challenge its smaller neighbor’s dominance as the region’s business, trade and tourism hub.

Despite being close allies, Saudi Arabia, which is trying to diversify its economy and reduce its dependence on oil, finds no option other than competing with the neighboring UAE to attract investors and businesses.

A Rivalry No One Can Afford

The rivalry between the two neighbors is putting the future of the GCCunder threat. It may have consequences that can be felt across the wider Middle East and international markets.

Despite this, many indicators can soothe these fears. One of these important indicators is the fact that the two Gulf countries still have many common interests, especially in the geopolitics and security spheres. Both of them are still threatened by Iran and its proxies. They still need to stop Turkey’s growing influence in the region and deter the influence of Islamic political movements.

As the Biden administration shows its keenness to make a new deal with Tehran that would loosen the restraints on Iran, the two Gulf allies may find themselves in the same boat again.

Such a deal should have its economic sequences on the two gulf countries too as the Islamic Republic is not only their geopolitical archfoe, but also a major competitor oil producer.

Both countries also still need to contemplate together how to deal with the ramifications of the US retrenchment from the region. A recent meeting between the UAE de facto ruler Bin Zayed and the Saudi Crown Prince in Riyadh following the OPEC tension indicates that the two countries are still keen to keep their political alliance intact.

However, their diversification plans and need for foreign investment while eyeing the same sectors such as tourism and transportation will only lead their economic rivalry to intensify.

The latest OPEC standoff also indicates that the rivalry between the two big oil-producing countries may lead them to weaponize oil from time to time as every one of them has a different oil policy.



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