GCC-UK breakthrough boosts prospects of EU deal

The eyes of much of the world have been on the Iran crisis in recent months. However, a very different development in the Middle East, also with international implications, arrived recently with the landmark UK-Gulf Cooperation Council trade deal.

The agreement is a genuine breakthrough, after long talks, driven in part by the economic challenges still unfolding as a result of the Iran crisis. The GCC has signed few such trade deals, including one pact with South Korea in 2023 that was sealed more than a decade and a half after talks began.

It is no coincidence that the UK is the first country in the G7 to break through the barriers to a deal with the GCC. One reason is the long historical ties between the two, stemming in part from the legacy of the British Empire. Today, the UK still has significant influence across the region.

For the UK, this is the third trade deal completed in the last year or so, following those with India and South Korea. London has also secured a tariff deal with the US and a Brexit reset agreement with the EU.

Total annual UK-GCC trade is already worth about $70 billion. This makes the GCC as a whole equivalent to the UK’s fourth largest non-EU export market, only behind the US, China and Switzerland.

The GCC had a gross domestic product of about $2 trillion in 2022 and this is forecast by the World Bank to grow to $6 trillion by 2050.

For the UK, this is the third trade deal completed in the last year or so, following those with India and South Korea

Andrew Hammond

The UK government said the deal will increase trade by as much as about 20 percent annually. The agreement will remove an estimated $780 million a year in tariffs on UK exports to the region once it is fully implemented.

Key UK sectors that could particularly benefit include agrifood, helping producers of cheese, butter and chocolate, for example. The GCC currently imports about 85 percent of its food supply, according to the World Economic Forum.

Other UK economic sectors that may significantly benefit include aerospace, finance and wider professional services such as legal. However, activist groups have criticized the lack of detail so far released about the terms of the deal.

Beyond the UK, the agreement will increase the appetite of the EU to close an agreement with the GCC. In 2022, former Italian Foreign Minister Luigi Di Maio was appointed as the first EU special representative for the Gulf to try to develop a stronger, more comprehensive and more strategic partnership.

One of the big prizes for the EU could be further open access to investment from Gulf sovereign wealth funds

Andrew Hammond

This is a personal priority for European Commission President Ursula von der Leyen, who is in her second term and will serve until late 2029. Like London, Brussels is also on a roll in terms of signing trade deals, as it has recently completed agreements with the Mercosur bloc, including Brazil and Argentina, Australia, Indonesia and India.

The EU is the second-largest trade partner for the GCC countries, generating €170 billion ($196 billion) in trade in 2023. Much of this is natural resource-related. For instance, fuel trade has grown rapidly, in large part due to a sharp shift in the EU’s supply sources caused by Russia’s invasion of Ukraine.

According to the European Council on Foreign Relations, of the 395 new energy agreements signed by the EU since the Ukraine war started in 2022, 58 have been with GCC nations. These are made up of 33 with the UAE, 11 with Qatar, eight with Saudi Arabia and six with Oman.

One of the big prizes for the EU of a GCC deal could be further open access to investment from Gulf sovereign wealth funds. These tend to be cross-sector investors that often take a multidecade economic perspective.

At present, EU-GCC relations are based on a cooperation agreement signed in 1989 that established regular dialogue on topics including economic relations, climate change, energy and the environment. However, the EU would like a trade deal and has ramped up efforts to try to deliver this.

The outlook is therefore positive for European-GCC economic ties, with energy security and geopolitics likely to remain at the heart of these dialogues. There is a growing possibility that the EU will be able to follow in the UK’s footsteps and finalize a trade deal in the coming years.