Make the Gulf great again – how the UAE-KSA rivalry is reshaping our neighbourhood
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Recent years are marked by an intensifying rivalry between the United Arab Emirates (UAE) and Saudi Arabia (KSA). The two Gulf heavy-weights race to diversify their economies away from fossil fuels, and to attract tourists and investments. In this regard, the KSA continues to catch up the UAE.
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Both countries also seek to expand their regional influence. ‘Dollar diplomacy’ is an old foreign policy instrument for the Gulf states, but lately, their toolbox has expanded from old-school bailouts to mega investments made by their sovereign wealth funds (SWFs). This gives them unforeseen leverage.
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As long as oil prices remain high, the Gulf states’ growing ambitions and ample financial resources is a ‘perfect match’ for ailing economies in the neighbourhood. Enter rivalry and their regional footprint – alongside their global influence – will continue to grow.
In many ways, as the world is in transition, so is Middle East. The Gulf states acknowledge their crucial role in the global energy market, and they still collaborate in that regard, but they also race to diversify their economies and grow their regional footprint. For two decades already, the United Arab Emirates has been attracting foreign investors, while actively investing in the region itself. Since launching its Vision 2030 eight years ago, the KSA has grown to become a real challenger for the UAE.
For the Emirates and the Saudis who have a long history of collaboration, the last few years are marked by an intensifying rivalry. It may be bold to say the two have drifted apart for good, but if they have (and some say they have), the economic and political implications could be significant. The stability of the oil market often relies on OPEC where an outright conflict already emerged in 2021. Also, Middle East’s neighbourhood is our backyard, and any problems there tend to spill over to Europe. Finally, what the Gulf powers are doing across the region is a perfect showcase of the world becoming multipolar.
Flexing muscles, buying influence
The UAE and the KSA are flexing their muscles as they compete, but also, as they see the new world (dis)order giving them a great opportunity to expand their influence. In many cases, the absence of the US or the EU in Middle East and North Africa (MENA) have left a vacuum to fill, or governments there prefer partners outside the West. Meanwhile, China’s enthusiasm to invest in the EM space is being dampened by its own economic woes. For example, in 2020s, China’s annual new lending to Africa has been on average 10% of what it was a decade earlier.
For long, a key motivation for both the UAE and the KSA to engage with neighbours has been to contain any pro-democratic Islamist movements. For both, their security agenda is linked to economic performance. Securing access to the Red Sea waterway that connects Middle East and Asia to Europe is crucial (similarly as is smooth sailing on the Persian Gulf), but that is not all. The ongoing attacks by Houthi rebels also jeopardise KSA’s giga projects along the Red Sea coast, most of which have a tourism dimension.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
