Brexit and the GCC

Brexit and the GCC

Saudi Arabia's King Salman bin Abdulaziz (R) meeting with British Finance Minister Philip Hammond in f Jeddah on July 7, 2019 to "strengthen economic and financial cooperation". (SPA photo)

The potential cost of Brexit to the UK’s economic performance and influence has made the country’s relations with the Gulf states more important. As a key export market for UK goods and services, and with Britain being a long-time safe haven for Gulf investors, an incredible amount of importance is being given to relations between the two sides.
In the context of a decline in the use of hydrocarbons, complicated regional disputes and a challenging domestic political environment in the UK, how relations will take shape going forward is a matter of great interest.
The EU has never been able to supplant itself into the more established relationships the UK has with the Gulf states. The Gulf Cooperation Council (GCC) has historically struggled to act in concert, and prospects for a free-trade agreement (FTA) with the EU remain slim. Though FTA talks were launched in 1990, to this day terms have yet to be agreed.
Though more structured trade and investment talks began in May 2017, the UK’s relationship with the Gulf states has traditionally been closer. In trade terms, of the EU-GCC total annual trade in goods of €143.7 billion ($161.6 billion), approximately a third is specifically with the UK ($47 billion). Given the status of London and the wider UK as a destination for Gulf money, European capitals would have to go some way to establish the same relationships.
While the UK cannot officially sign any trade agreements as an EU member state, it can engage in preparatory talks and preliminary agreements. Importantly, the GCC tends to negotiate collectively, as it did when finalizing agreements with Singapore, Iceland, Liechtenstein, Norway and Switzerland.
But multilateral agreements with the UK may prove problematic, given the regional dispute with Qatar. The UK would probably have to follow the path of bilateral agreements, which Saudi Arabia and the UAE have suggested.
The increased nationalism of the Gulf states in recent years has drawn away from the very close relationship they have always enjoyed with the UK. In fact, for Gulf rulers, the strongest current running through their modern history is the era of British hegemony (1820-1971).
Contrary to the belief that the thin red line of empire was drawn over the Gulf in order to secure trade routes to India, the region’s rulers actually invited British alliances to defend themselves from attack both from each other and from third parties.
These relationships matured, and Britain eventually assumed responsibility for the defense of Oman in 1829, the Trucial States (the present-day UAE) in 1835, Bahrain in 1861, Kuwait in 1899 and Qatar in 1916. With everything from modern sewage systems to these young nations’ very flags having been drawn in London in some cases, the two sides share deep bonds.

The prospect of leaving the EU offers great opportunities for British and Gulf businesses alike.

Zaid M. Belbagi

As the UK embarks upon arguably its most drastic peacetime rupture in its international relations, the situation is reminiscent of January 1968, when a few weeks after the devaluation of the pound, Prime Minister Harold Wilson announced that British troops would be withdrawn in 1971 from major military bases in Southeast Asia (primarily Malaysia and Singapore), as well as in the Gulf and the Maldives.
This decision saw the Gulf states establish themselves as independent entities, in some cases much to the surprise of the local rulers, who had grown accustomed to the security umbrella London offered. This juncture led to the two sides remaining close, with the GCC states having invested billions in the UK, and British military bases in the region having remained, and in some cases expanded.
The prospect of leaving the EU offers great opportunities for British and Gulf businesses alike. No less than three prime ministerial trade envoys are currently active in the GCC, in addition to a special envoy for the Saudi Vision 2030 reform plan. Gulf investors have taken advantage of the pound’s weakness and have built up funds in the UK, currently awaiting “deployment” should the pound weaken further post-Brexit.
Separately, 32 percent of GCC imports from the UK are in services, largely dominated by the health and education sectors. In the longer term, the burgeoning consumer market in the region will provide worthwhile trade opportunities, especially since the UAE alone is Britain’s fourth-biggest export market outside the EU.
Going forward, irrespective of Brexit, there is no doubt that the relationship will go through some recalibration due to economic and political realities. Considering the US focus on the Eastern Pacific, there exists the very real possibility that the GCC states will need to broaden their security umbrella.
In light of the success of HMS Jufair in Bahrain, the first permanent UK naval base to be built for 40 years, and the impressive Saif Saree III military exercises in Oman, discussions are in place to expand the UK’s military presence in the region. A strong pro-Brexit Conservative government would do well to build upon existing military cooperation with a view to furthering the UK’s presence in the region.
There is every possibility that a troublesome withdrawal from the EU will trigger a general election. Under these circumstances, a Conservative government would look more favorably upon the UK’s ties with the Gulf than a Labour one led by Jeremy Corbyn.
The recent June 2019 Court of Appeal ruling on arms exports to Saudi Arabia illustrated the challenges that UK governments face in doing business in the Arab world, and though Gulf investment in Britain is set to continue, a government more favorable to business and international markets will be central to the success of this.

Zaid M. Belbagi is a political commentator, and an adviser to private clients between London and the Gulf Cooperation Council (GCC). Twitter: @Moulay_Zaid

 

 

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