Why the UAE and Israel Struck a Trade Deal

Israel and the United Arab Emirates deepened ties on Tuesday with a historic free trade agreement—the first of its kind between Israel and an Arab country—at a time of growing criticism of Israel’s treatment of Palestinians. Both Israel and the UAE are touting the major economic benefits that such a deal could bring. But experts tell TIME that it’s too early to assess the economic impact of the free trade agreement and that the main value of the agreement is political in nature.

The deal, by the numbers

Why the UAE and Israel Struck a Trade Deal

The UAE praised the deal for lifting tariffs on 96% of goods, as well as for its potential to boost budding sectors related to the environment, energy, and digital services. The Israeli government previously stated that the deal would accelerate the trade of products such as food and medicine, while enhancing competition over government procurement contracts in both countries.

Both Israel and the UAE are already predicting annual bilateral trade will reach $10 billion in five years, more than 10 times the figure recorded in 2021. Around 1,000 Israeli companies are also expected to open in Dubai by the end of this year.

“They broke a barrier when they decided to sign the agreement,” says Dorian Barack, the co-founder of the UAE-Israel Business Council, a foundation that promotes partnerships between the two countries and Israel and the wider Middle East. “The breaking of that psychological barrier I think has brought a lot of people—who were out of the Israeli market—to consider doing stuff with Israelis.”

However, experts are skeptical about the $10 billion figure. According to World Bank data, that amount would make the UAE one of Israel’s largest trading partners. A local Gulf expert, who asked TIME not to disclose his name out of fear that he could lose his livelihood for challenging the information of regional governments, says that the prediction is a stretch. “Look, if the governments are the source, then they usually exaggerate.”

The politics of strengthening business with Israel

The trade deal comes two years after the Abraham Accords, which saw Israel normalize ties with the UAE, Bahrain, Morocco, and Sudan. Although the Israeli press championed Tuesday’s agreement, the Emiratis tightly controlled the messaging of the deal by shutting out foreign media from the signing ceremony in Dubai. (Many local outlets are owned or controlled by the state.)

It’s a reminder that, despite the headline news, the UAE’s budding ties with Israel remain deeply controversial across much of the Arab world—particularly as tensions between Palestinians and Israelis mount. Three days ago, the UAE foreign ministry condemned what it called Israel’s “extremist settlers” for storming Jerusalem’s al-Aqsa mosque, the third holiest site in Islam.

Weeks earlier, Shereen Abu Akleh—the renowned Palestinian-American journalist for Al Jazeera—was shot dead in the Israeli occupied West Bank, most likely by Israeli soldiers, according to a CNN investigation. Israeli police then attacked pallbearers at Akleh’s funeral, sparking international condemnation. The incidents followed the arrest of two Palestinians suspected of killing three Israeli civilians with an axe.

Read more: The Problems With Israel’s Version of the Killing of Reporter Shireen Abu Akleh

Hasan al-Hasan, a Gulf expert with the International Institute for Strategic Studies (IISS), sees the trade deal as part of a wider Emirati strategy to deepen ties with Israel to hedge against Iran, a shared strategic foe of both countries.

Abu Dhabi is walking a tightrope since dispatching its top national security adviser Sheikh Tahnoon bin Zayed al Nahyan to Tehran in December 2021. The visit aimed to recalibrate diplomatic relations—which soured in 2016 when ally Saudi Arabia executed Shia activists and the Saudi embassy in Tehran was stormed—and also boost cooperation on a number of shared economic files with Iran. But in case diplomacy fails, the UAE can fall back on its relationship with Israel to contain Iran’s regional influence, says al-Hasan.

“By signing this agreement [the Emirates] are saying that despite our differences on the Palestinian issue… we can continue to do business on other unrelated issues,” adds al-Hasan.

Elham Fakhro, a research fellow at the University of Exeter’s Center for Gulf Studies, agrees that the trade agreement is further evidence that the UAE is committed to establishing a warm peace with Israel irrespective of the wider regional reputational damage brought on by the unresolved Palestinian-Israeli conflict.

“It’s been clear that Israel’s relationship with the Palestinians will not affect the trajectory of the relationship between the two sides,” she tells TIME.

Will other Arab countries follow suit?

Despite the low point in Palestinian-Israeli affairs, Tel Aviv is betting that it can entice other Arab states to do business through highlighting the benefits of bilateral cooperation with Abu Dhabi. Although Israel has already established trade relationships with Western nations, its leaders want to tap into these domestic Middle East markets to acquire regional legitimacy from its neighbors, despite the unresolved Israeli-Palestinian conflict, according to the local Gulf expert.

Egypt and Jordan, which have maintained a cold-peace with Israel since 1979 and 1994, respectively, have already stepped up economic activity with Israel in recent months.

Last November, Cairo signed a Memorandum of Understanding with Tel Aviv to increase the export of Israeli natural gas through its pipelines. Two months earlier, Amman inked a deal that would see it provide clean energy to Tel Aviv in exchange for desalinated water.

But a comprehensive bi-lateral pact between Egypt or Jordan with Israel is unlikely due to public opinion in both Arab states.

Contrary to the UAE, whose citizens comprise little more than 10% of a diverse population that is generally friendly towards Israelis, Egypt and Jordan are almost entirely populated by their own people. Due to popular pressure, officials from both Arab countries must deal with Israel differently than the UAE.

“The UAE does not share a border with Israel and has not directly engaged in warfare and conflict in the way the Egyptians and Jordanians have,” says Bader al-Saif, an expert on the Gulf at Kuwait University. “It is because of that, along with the UAE’s interest in benefiting from Israeli technology and raising its profile, which leads to more collaboration.”

A number of Gulf Cooperation Council countries are still trading with Israel through third-party countries, mostly Jordan, Turkey, or within the E.U. With indirect trade accounting for about $1 billion in 2018, these nations have less of an incentive to endure the reputational costs at home that come with normalizing ties with Israel.

Analysts agree that Tel Aviv will remain unable to access most Arab economies—a longer term goal of Israel—for the foreseeable future.

The local Gulf expert says that while most Arab countries ban Israeli goods, the ban doesn’t hurt Israel’s economy too badly. Israel still sells big-ticket items, such as military equipment and spyware to various Arab countries, according to a report by the Israeli newspaper Haaretz.

Last year, an investigation by 17 media organizations found that 37 phones belonging to government officials, journalists, and activists were targeted by the Israeli spyware Pegasus. The Ministry of Defense, which approves all export licenses for spyware, said that its products were intended to be used lawfully to fight crime and terrorists.

Why the UAE is a regional outlier on Israel

The UAE has its own priorities when it comes to Israel. Al-Saif said that Tuesday’s free trade agreement should be interpreted as part of a larger Emirati effort to diversify its regional collaboration, such as through mending ties with Qatar and deepening investments in Turkey.

The UAE also has a large interest in Israel’s military hardware, as it increasingly prioritizes bolstering its defense capabilities because of what it perceives as U.S. fatigue in the region. But al-Saif warns that there will always be obstacles for Arab-Israeli cooperation until the Israeli-Palestinian conflict is resolved.

“Arab-Israeli deals (like the Free-Trade Agreement) will not reach their full potential without resolving the root causes of the Arab-Israeli conflict,” he says.

Related Posts