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Expanding a Long-time Partnership:
Oman and the UK Bolster Economic Ties

by Sophie Smith

On 11 January 2022, Oman and the United Kingdom (UK) established a Sovereign Investment Partnership (SIP) with the intention to bolster their economic ties and increase high-value investments in areas such as clean energy and technology.[i] The Memorandum of Understanding (MoU) was signed by the UK’s newly formed Office for Investment (OFI) and the Oman Investment Authority (OIA). The meeting is indicative of the growing relations between the two countries as they seek to boost foreign investments in an effort to stimulate the economy in a more sustainable manner post the COVID-19 pandemic. It is also part of the UK’s wider aim of advancing economic relations with the lucrative Gulf Cooperation Council (GCC) market and securing a UK-GCC Free Trade Agreement.


An Established, Comprehensive Partnership

As a former British semi-protectorate, Oman has an established, comprehensive relationship with the UK that spans several sectors from defence and security to education. Most notable perhaps though are its economic ties. Indeed, UK firms have a long history of investing in the country. For example, UK oil and gas companies BP and Shell have significant interests in Petroleum Development Corporation (34%) — Oman’s leading exploration and production company — and Khazzan Gas project (60%) — one of Muscat’s largest upstream projects — respectively.[ii] And, in 2021, UK waste-to-energy manufacturer Green Fuels formed Wakud, a joint venture with an Omani consortium, that has invested over $2 million into the Sultanate’s biofuel market. This encompasses a biorefinery in Khazaen Economic City that is set to become the world’s first solar-powered biodiesel plant later in 2022.[iii]


Such initiatives have been further consolidated by the recent uptick in bilateral government-driven engagements amid the UK’s departure from the European Union. In 2019, the two countries entered ‘a new era of cooperation, sharing expertise and experiences,’ according to both Foreign Ministers, with the signing of several agreements.[iv] The Joint Defence Agreement and the Joint Declaration on Enduring Friendship, signed in February and March 2019, respectively, was followed by a Comprehensive Agreement on Enduring Friendship in May 2019.[v] These acted as a catalyst for strengthening cooperation in priority sectors such as sciences, health, technology and defence. Further building on this, in December 2021, UK Prime Minister, Boris Johnson, and Sultan of Oman, Haitham bin Tarik Al Said, held discussions on bolstering bilateral relations in trade, investment and defence.[vi] Against this backdrop, Oman and the UK share a growing trading relationship of £1 billion annually with UK foreign direct investments (FDI) in the Sultanate having consistently accounted for 50% of foreign investments into Oman in recent years (barring 2021).[vii]


Beyond the UK: Boosting Foreign Investment

The agreement with the UK is indicative of Muscat’s broader strategy to attract foreign investment to the country underpinned by its economic development plan, Oman 2040.[viii] Under the guidance of Oman 2040, it has implemented a myriad of measures to attract outside investments, such as the establishment of Duqm Special Economic Zone (which offers tax exemptions and the like) and the introduction of legislation that, for instance, allows for 100% foreign ownership and removes minimum capital requirements.[ix] And complementary to this, it has been penning agreements with countries such as China, the United States and its Gulf neighbours to attract their business into the Sultanate. Particularly, there has been a focus on attracting Chinese investments — which took the UK’s first place in FDI inflows in 2021 — as indicative by Omani Foreign Minister, Badr Hamad Al-Busaidi’s, visit to China in January 2022.[x]


Such measures are designed to diversify the economy away from its reliance on hydrocarbons, which has become ever more necessary in recent times. Oman’s economy has significantly suffered as a result of the COVID-19 pandemic. Its budget deficit reached -17.32% of GDP in 2020, a deficit Oman has been operating under since 2014.[xi] This is coupled with a negative economic growth rate that hit -6.4% in the same year, a number not seen since 1987.[xii]


Into the Future

Despite the urgency and the implementation of enhanced trade measures, FDI inflows have not significantly increased. After reaching a high in 2018, they have been falling with the most recent figure in 2020 being $2.86 billion.[xiii] That said, rating agency Fitch recently revised Oman’s outlook to ‘stable’ from ‘negative,’ citing higher oil prices and fiscal reforms.[xiv] In this respect, things appear to be looking up for Oman. To ensure that this is realised and capitalised on, the following recommendation can be given in relation to increasing foreign investments:


  1. Further diversify its foreign partnerships. With the UK — and now China — making up the majority of Oman’s foreign investments, the Sultanate should focus on reducing its reliance on one country and diversifying its partnerships. Hence, it should focus its energy on forging and strengthening partnerships with other countries (including notably European ones). However, this should not come at the expense of its main partners who will continue to play a key role in Oman’s economy.


  1. Continue introducing reforms that make Oman more attractive to foreign investors. This involves addressing challenges, as cited by businesses, such as the Omanisation quotas (the requirement to hire a specific percentage of Omani nationals), transparency measures for tenders and other bureaucratic obstacles, to name a few.[xv]


11 February 2022





[i] UK Government, ‘UK and Oman kickstart Sovereign Investment Partnership to boost investment links,’ UK Government, January 11, 2022.

[ii] Shell, ‘Petroleum Development Oman (PDO),’ Shell, n.d.; BP, ‘BP starts production from giant Khazzan gas field in Oman ahead of schedule and under budget,’ BP, September 25, 2017.

[iii] UK Government, ‘UK and Oman kickstart Sovereign Investment Partnership to boost investment links.’

[iv] UK Government, ‘Oman: UK and Oman sign Comprehensive Agreement,’ UK Government, May 23, 2019.

[v] UK Government, ‘Oman: UK and Oman sign Comprehensive Agreement.’

[vi] UK Government, ‘PM meeting with the Sultan of Oman: 16 December 2021,’ UK Government, December 16, 2021.

[vii] UK Government, ‘UK and Oman kickstart Sovereign Investment Partnership to boost investment links;’ National Centre for Statistics and Information, ‘Foreign Investment,’ National Centre for Statistics and Information, September 11, 2021.

[viii] The Government of Oman, Oman 2040 (Muscat: The Government of Oman, 2020).

[ix] Ministry of Legal Affairs, Royal Decree 52/2019 Promulgating the Public Private Partnership Law, Sultanate of Oman: Ministry of Legal Affairs, 2019.; Ministry of Legal Affairs, Royal Decree 51/2019 Promulgating the Privatisation Law, Sultanate of Oman: Ministry of Legal Affairs, 2019.

[x] National Centre for Statistics and Information, ‘Foreign Investment;’ Times of Oman, ‘Oman and China hold talks,’ Times of Oman, January 14, 2022.

[xi] IMF, ‘Net lending/borrowing (also referred as overall balance),’ IMF, n.d.

[xii] IMF, ‘Real GDP Growth,’ IMF, n.d.

[xiii] CEIC, ‘Oman Foreign Direct Investment,’ CEIC, n.d.

[xiv] Fitch Ratings, ‘Fitch Revises Oman's Outlook to Stable; Affirms at 'BB-',’ Fitch Ratings, December 20, 2021. - :~:text=Fitch Ratings - Hong Kong - 20,IDR) at 'BB-'..

[xv] U.S. Department of State, ‘2021 Investment Climate Statements: Oman,’ U.S. Department of State, 2021.

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