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Brexit will test UK-GCC special relationship

A handful of historic decisions made in London have had a lasting impact in the Middle East, and the Gulf is certainly no exception. The formal British withdrawal from the Gulf, initiated in the early 1960s and finalized a decade later, created several independent states and eventually a security vacuum that would draw the US to the region.

On Wednesday, the same day Arab leaders met in Jordan for the Arab League Summit, the government of Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty, officially starting the Brexit process.

The Arab Gulf governments now wonder how Brexit will affect relations with their longstanding British ally and former imperial power. With all the political, economic and legal ramifications, inherent uncertainty and hyper-complex two-year negotiations (at the very least) with the EU, there are numerous scenarios at play.

Instead of isolation, leading Brexiteers bet on the idea that the withdrawal from the EU will, in May’s words, lead to a “truly global Britain,” breaking what they perceive as the shackles tying them to the European bloc.

In a visit to the UAE earlier this year Philip Hammond — the UK’s chancellor of the exchequer, who backed the Remain campaign — emphasized that Brexit would mean that the UK’s trade ties with traditional partners are now more important than ever. “We will have a clear necessity to build on those relationships and also the opportunity to do it because being outside the EU will give us opportunities we didn’t have inside,” Hammond noted.

Politically, and with the Tories’ internal hegemony unlikely to end any time soon, ties with the Gulf Cooperation Council (GCC) states will remain strong. 

The first GCC-UK Summit held in Bahrain last December launched the GCC-UK Strategic Partnership, and a second summit is due to take place this year.

UK’s diminished standing

Yet there are other aspects to consider. These could diminish the global relevance of the UK and affect the practical advantages the Arab Gulf states can draw from the relationship with the UK.

Whether it is a “hard” or “soft” Brexit, the UK government will inevitably lose influence in Europe. The Arab Gulf states will have to look elsewhere, Paris maybe, for a close partner within the EU that can be the go-to interlocutor with the European bloc.

A day before the British government triggered Article 50, the Scottish Parliament backed the call by First Minister Nicola Sturgeon for another referendum on independence. In 2014, 55 percent of voters chose to stay in the UK.

Gulf states will have to look elsewhere for a close partner that can be the go-to interlocutor with the European bloc.

Manuel Almeida

But the majority of Scottish people also want to stay in the EU and Brexit is uniting pro-European and the pro-independence Scots. The independence referendum is unlikely to take place until next year at the earliest, however the pieces are already in motion.

With the decline of the North Sea oil industry, Scotland may not look as strategically important as before. Yet the independence of Scotland would be another element diminishing not only the geographical size of the UK but inevitably its global standing.

Economic jitters

The greater uncertainty is the UK’s economy. The British government will be keen to expand its trade, commercial and investment ties with the Gulf states and will find willing partners in the region. Last year, bilateral trade between the UK and GCC reached £30 billion and the plan on both sides is naturally to step it up, possibly through a free-trade agreement.

Every aspect of Brexit seems to have two sides to it. The decline of the value of the pound to a historical low will be good for British exports to the GCC and it makes the UK attractive for Gulf investors, students and tourists. On the other hand, it will negatively affect British investment capacity and the flow of British tourists to the Gulf.

Arab Gulf states have continuously showed confidence in the UK’s economic resilience. The very same week that Brexit was officially triggered, Qatari Prime Minister Sheikh Abdullah bin Nasser bin Khalifa Al-Thani announced that the Qatar Investment Authority will invest an additional £5 billion in the UK after Brexit.

The performance of the UK’s economy since the vote has made Brexiteers feel vindicated. Together with consumer confidence, the UK’s independent monetary policy and the flexibility of its exchange rate go a long way to explain the apparently successful response of the economy to the Brexit shock.

Now comes the hard part. The EU will demand that the UK settles its Brexit bill, which the EU estimates at €60 billion ($64 billion). Banks and businesses are starting to move some or all of their employees and operations to continental Europe or the US, while many business leaders warn about the dire consequences of a hard Brexit. Naturally, investors are holding back until there is more clarity about what is coming. The crippling impact of a failed UK-EU deal on the British, EU and global economies should not be underestimated.

Ultimately, there is a special character to the UK’s relations with the Arab Gulf states: A shared history, enduring monarchies, the British military presence in Bahrain, and the fact Britain remains a preferred destination for Gulf citizens. Brexit and its effects, now starting to kick in, will test the relationship.

• Dr. Manuel Almeida is a leading political analyst, providing research and consultancy services focusing on the Middle East. He is the former editor of the English online edition of Asharq Al-Awsat newspaper and holds a Ph.D. in International Relations from the London School of Economics and Political Science. He can be reached on Twitter: @_ManuelAlmeida.