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Saudi Arabia and the United Arab Emirates (UAE) are racing to diversify their economies as they gear up for a post oil future. Sparring for investors and tourists, the fierce competition risks disrupting an alliance that has shaped the Middle East since the Arab Spring.
July 2021, Saudi Arabia and Russia — the de-facto leaders of OPEC+ – proposed to restrict oil production beyond April 2022. The other countries fell in line, except the UAE which demanded a higher baseline.
The UAE wishes to maximize output to invest in its post-oil economy, which it sees as existential in maintaining regional clout. But Saudi Arabia does not want the UAE to achieve its vision too soon, realizing that it lags behind in transforming its own economy. Saudi Arabia instead blamed the UAE for obstructing an OPEC deal needed to stabilize global oil prices.
“It’s the whole group versus one country, which is sad to me, but this is the reality,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters.
“The UAE demands to have justice in the new agreement… and it is our sovereign right to demand reciprocity with the rest of the countries,” said Emirati Energy Minister Suhail Mohamed Al-Mazrouei.
The UAE’s objection encapsulates how it sees itself: as a regional power charting its own path, beyond the shadow of Saudi Arabia. The dispute also highlights the changing dynamics between the two countries after nearly a decade of close cooperation.
Fearing the ripple effect of democratization during the Arab Spring, the two allies bankrolled counter-revolutionary players and repressive regimes in order to check the influence of liberal democrats, the Muslim Brotherhood and Iran.
But over the last two years, the UAE’s de-facto leader Mohammad bin Zayed (MBZ), the Crown Prince of Abu Dhabi, has diverged from Saudi Arabia on key files. It has normalized ties with Israel in exchange for acquiring F-35s – the most sophisticated US fighter jet – and pursued separate geo-political goals in Yemen. Now it is focused on maintaining its position as the economic hub in the region.
In hindsight, Saudi Arabia and the UAE’s diversification plans were destined to overlap. Even before Mohammad bin Salman (MBS) became Crown Prince, he unveiled Vision 2030. The blueprint seeks to transform Saudi Arabia from an ultra-conservative oil-dependent kingdom, into an industrial, futuristic, and logistical powerhouse. MBS patterned his vision after MBZ, who saw himself as a regional trailblazer on a number of files. And just like the Emiratis, the Saudis are relying on an elixir of social liberalism and brutal authoritarianism to spearhead diversification and development.
To accelerate progress, MBS is making moves that undermine the Emirates’ standing as the glitzy, cosmopolitan hub. On February 16, 2021, the kingdom announced that companies would lose access to lucrative government contracts by 2024 if they do not relocate their regional headquarters from the UAE to Saudi Arabia .
Companies may push back, since the UAE ranks 16th on the World Bank’s 2020 Ease of Doing Business Index, while Saudi Arabia ranks 63rd. However, the kingdom is expected to move up significantly after it loosens red tape. Saudi Arabia also revealed that it will impose tariffs on products made in free zones in the Gulf Cooperation Council (GCC), a staple of the UAE’s economy.
Despite these measures, competition for investment and tourists should not sour relations. On the contrary, it could spark innovation and benefit all countries in the GCC, according to Bader al-Saif, a non-resident fellow at the Malcolm H. Kerr Carnegie Middle East Center in Beirut.
The key, he notes, is that the Emiratis and Saudis must recognize that competition does not outweigh the benefits of cooperating on a number of other shared interests.
“There is a sense in Saudi Arabia, among decision makers and youth, that they missed out on developing in the past,” Bader told Fanack. “The Emiratis are aware of this reality, but there should not be conflict as long as their threat perceptions of each other are kept at bay.”
The United States could also capitalize on the growing competition between Riyadh and Abu Dhabi to push both countries to improve their human rights record and stabilize the region. MBS and MBZ will be increasingly sensitive to criticism and possible threats of sanctions — whether it be for abuses committed at home or abroad – since it could damage their respective images and spook investors.
With that in mind, both countries are dialling back hard power to clean up their image. The UAE has the more polished brand right now, since most people in the United States are less aware of its repressive policies and imperial conquests, compared to Saudi Arabia. That bodes well for investors that are looking to avoid public backlash for doing business with repressive regimes. It equally benefits the Emirates, which could improve its reputation by further distancing itself from Saudi Arabia.
Hani Sabra, the founder of Alef Advisory and an expert on Gulf affairs, suspects the Saudi/Emirati axis will fragment as competition ramps up. By that he means that the two countries will cease to converge their foreign policy agendas to pursue multiple shared interests.
“I think the time for that is over,” Sabra told Fanack. “Each country believes that they can ally on a compartmental basis, and where they feel it is safe to compete on another issue, then they will do that as well.”
A major fallout is thus unlikely, but not impossible. Relations could deteriorate if the UAE believes that Saudi Arabia is consistently and deliberately undercutting its ambitions, or vice versa. One scenario could see the Emirates leave OPEC if the dispute isn’t resolved. According to a number of people with knowledge on the issue, UAE officials are entertaining the option.
“Leaving OPEC would be a clear sign of fragmentation,” said Sabra. “It’s possible, but not probable.”