As some of the most powerful nations in the Middle East and consequential members of the Gulf Cooperation Council (GCC), Saudi Arabia and the United Arab Emirates (UAE) have consistently shown the resilience of their alliance in a politically turbulent region. The two countries maintain an extensive economic, cultural, and political partnership; however, the seemingly robust bond between these two allies is potentially fraying. In an uncertain economic and energy environment, diverging interests of Saudi Arabia and the UAE have begun to surface, leading to possible long-term shifts in their relations. This new dynamic between the two Middle Eastern powers may become the norm and affect the regional economy and politics.
Dissent in OPEC
Traditionally, the UAE has been a “stalwart partner” of Saudi Arabia in the Organization of the Petroleum Exporting Countries (OPEC). In July 2021, however, Saudi Arabia’s plan to increase OPEC oil output in stages, after significant production cuts amid the Covid-19 pandemic, was met with resistance from the UAE, which demanded its production quota be revised. The UAE hopes to boost revenue and invigorate economic recovery through greater oil output and use this as an opportunity to increase market share. Meanwhile, Saudi Arabia hopes to prevent low oil prices and sustain its key source of income. It is reported that the two countries and other OPEC members were able to reach a compromise, but the development sent a clear signal that the interests of these two oil-rich economies are not aligned. As speculations regarding global oil demand persist and climate change becomes a major policy driver, Saudi-UAE relations in OPEC may continue to experience disturbances.
Economic Battle in the GCC
In February 2021, Saudi Arabia, in an unexpected ultimatum, announced that it will cease doing business with international companies that have not headquartered its Middle East operations in the Kingdom by 2024. Additionally, in July of 2021, Saudi Arabia imposed new rules that remove preferential tariff status on imports made in “free zones” in neighboring GCC states. The country, as part of its Vision 2030 strategy, aims to diversify its oil-reliant economy and create private-sector employment for its young populace.
These moves, however, can be interpreted as a jab at the UAE which houses the Middle East and North Africa (MENA) hubs and operations of numerous international corporations. It is well-known that the UAE is one of the more politically liberal and economically advanced nations in the region. Along with UAE’s well-connected and world-class infrastructure, it has a diverse economic portfolio. “Mineral fuels, oils, and products of their distillation” account for around 39% of the UAE’s exports. For Saudi Arabia, however, the same exports are around 75%. Based on the aforementioned data, the UAE is positioned as a more competitive economy. Even so, Saudi Arabia is one of the largest markets in the Middle East, and the country’s demographics could give it a competitive advantage. The UAE’s rapidly dropping fertility rate is becoming a cause for concern, and the government is incentivizing citizens to address the challenge. Furthermore, around 90% of the UAE’s population consists of expatriates who flock to the country seeking employment and investment opportunities. This puts pressure on the government to control economic volatility or risk losing foreign investment and workers. The UAE is implementing policies, such as offering long-term visas to professionals, to retain talent in the country.
It is yet to be seen what lasting implications initiatives by Riyadh and Abu Dhabi have on the region, but it is clear that the two countries are willing to dent their relations for economic competitiveness. With an uncertain future in the oil sector, the friction over foreign investment and economic stimulation is bound to increase among the Gulf states.
The Diplomatic Edge
In 2019, the UAE withdrew its forces from the Yemeni Civil War, leaving Saudi Arabia to fend for itself. The UAE aims to appease parties condemning human rights atrocities in Yemen and limit the economic burdens associated with the war. The country has also established relations with Israel and is engaging with Iran. Saudi Arabia may follow UAE’s footsteps and soften its hostility towards its rivals. For now, the objectives of the Saudi-UAE axis seem inconsistent, and the UAE may be in a position of advantage.
The UAE is more flexible in its diplomacy and generally maintains a cordial stance with powerful states. For example, Israel-UAE normalization will provide economic and defense opportunities to these countries as they open up trade and cooperation. In another diplomatic win for the UAE, the Biden administration, after halting weapon sales to Saudi Arabia and the UAE over human rights concerns, is proceeding with sales to the UAE. The deal with Saudi Arabia remains paused. Moreover, the UAE is expanding ties with China and welcoming investment from the world’s 2nd largest economy. Even though Riyadh maintains substantial relations with Beijing, it has a greater stake in balancing its foreign-policy objectives, including strategic ties with Washington and geopolitical issues with Tehran (Beijing's strategic partner). How these developments shape long-term Saudi-UAE relations is yet to be seen, but the perception of these two countries as a unified diplomatic force is in question.
Future Implications
The likelihood of the UAE and Saudi Arabia being direct rivals is virtually nonexistent. The two neighbors continue to share similar interests in the region (e.g., limiting Iran's influence), and both have supported each other in major diplomatic incidents (e.g., the 2017 Qatar embargo). The relationship between the Saudis and Emiratis has not always been smooth, but these two states have remained allies throughout their disputes. In the long run, economic uncertainty and the changing geopolitical environment will likely produce a more multifaceted and competitive relationship rather than a contentious one.
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