Despite the Obstacles, the Future Looks Bright for Emirati Investments in Israel
by Zsolt Csepregi*
One of the highlights of the international political events in 2020 was the signing of the Abraham Accords between the United Arab Emirates (UAE), Bahrain, and Israel, under the patronage of the United States (US). The normalisation agreement between the three Middle Eastern states was not surprising in its substance, but in its scope and the ease with which it came to force. Israel was known to cooperate in a semi-secret manner with all Gulf states over the past decades. The common security, political, and economic goals fostered fruitful, yet clandestine partnerships, which were labelled as the “Mistress Syndrome” in Israeli academia, as, while the cooperation was ongoing, the Arab states did not want to acknowledge the relationship for fear of domestic backlash. The Abraham Accords promised the first true “warm” peace between Israel and Arab countries, as Egypt and Jordan limit their engagement with their neighbour to strategic issues. One of the most promising areas of the cooperation between the two Gulf states and Israel are business ventures and investments—especially Emirati capital and strategic vision coupled with Israeli technology, market access and geographic position promise lucrative and transformative joint ventures.
Beyond the immediate economic and societal gains, the Emirati-Israeli cooperation has, both a global and a regional geopolitical reason. From the US perspective, it needed to bring together its Middle Eastern allies to limit China’s foot mark in the region and also to balance Iran. During the last decade, Israel has been developing an extensive partnership with China, opening its doors for investment in its highly coveted tech sector and critical infrastructure. By 2019, the US was sending open warnings towards its Middle Eastern ally that this partnership with Washington’s great power competitor will result in damaging security and political partnership with the US. Israel reluctantly adopted an investment screening mechanism and cautiously limited its engagement with Chinese investors, but it still needed foreign capital to fuel its transformation into a regional great power and global middle power. The accords with the Gulf states came at the right moment to fill in the gap left by Chinese investments, and the engagement between the UAE and Israel was developing rapidly during the final months of the Trump administration, with numerous agreements signed and funds set to be operational, commanding billions of dollars. The crucial issue is whether critical infrastructure investments will materialise and provide alternative funding instead of Chinese capital. There are two difficulties in this regard, namely the new Biden administration’s policy and the new Israeli government.
The US Democratic President signalled a significant shift in Washington’s Israel policy by adopting a more moderate pro-Israel stance than the previous Trump leadership. Due to internal US challenges and other, external issues, particularly Chinese, Russian, and Iranian assertiveness, this shift came in a temperate manner. The reduced enthusiasm for Trump’s Middle Eastern policy came with the freezing of the Abraham Fund, some $3 billion (USD), which would have supported the economic engagement between the signatories of the Abraham Accords. Biden’s team was naturally positive about the deepening engagement between its Middle Eastern allies; it will support the process with political and diplomatic means, but will be reluctant to use US citizens’ money to aid some of the richest countries on Earth to follow their national interests.
The new Israeli government immediately took the reins of developing the relationship with Bahrain and the Emirates and, uncommonly in international politics, did not forget to credit the previous administration. Yet there are contentious points, which are natural when it comes to a government as diverse as the current Israeli one. For instance, Meretz, which is a Leftist/Green Zionist party, halted the realisation of one of the two flagship Emirati investment projects, the Med-Red oil pipeline, due to environmental concerns. The pipeline would provide an outlet to Gulf crude towards European markets, circumventing the Suez Canal. The Israeli government hopes to resolve this issue rapidly by realising the project and respecting their country’s environmental standards. The Emiratis see this specific issue as a test of future projects to come. Another strategic point is the extension of the Haifa Port, just opposite of the Chinese-owned sector of the installation. It was unthinkable, even two years ago, that an Arab country could hold possession of Israeli critical infrastructure, yet the Dubai-based DP World has partnered with Israel Shipyards Industries (a key element of the Israeli military-industrial complex) to acquire the strategic asset and hopes to close the deal by the end of 2021.
Considering the interests of the two states, Emirati investments will have a significant role in the future of Israel. Firstly, these large-scale projects are inserted between quickly developing lower scale business ventures and social engagement, such as start-ups, trade ventures, tourism, and culture, which only needed the legal obstacles to be removed to flourish in the past year. On the other end of the spectrum, the geopolitical vision of the two participating countries, plus their foreign patron, the US, pushes them towards deeper engagement. The UAE is becoming a small state yet a mature middle power on its way to become and established leading technological power on the global scale. It is also highly wary of Iran and non-state actors and looks for capable regional partners, such as Israel, to balance against these threats. Israel needs investments and regional partners to fuel its rise into a global middle power. The two states are also conveniently located on the two ends of the Arabian Peninsula, one facing the Mediterranean, the other the Indian Ocean, which makes their partnership natural. Finally, the US needs its allies to form their own partnerships and bear their costs with minimal support so it can focus on the Pacific theatre, specifically the China issue. Considering the above factors, the future of Emirati investment and engagement with Israel seems bright, but the participants still have to understand how to manage the partnership themselves and not relying on outside support to guide their emergence.
7 September 2021
*Zsolt Csepregi is the Deputy Director for International Affairs at the Budapest-based foreign policy think tank, the Antall József Knowledge Centre.
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