The international investment appetite for the Middle East has been heavily influenced by geopolitical events that impact stability in a major oil producing region. Recent events which we will explore in some detail are clear indicators of where the region is heading in promoting greater collaboration in both the economic and political fields.
The inclusion of regional markets as part of the major equity indices has had a positive impact on inbound flows. This also coincides, not coincidentally, with a concerted effort across the regional securities services industry to adopt global standards to facilitate greater domestic and international market participation.
As one of the largest and longest established international banks in the Middle East, Standard Chartered continues with its Global Custodian partners to be at the forefront of promoting both change and consistency to ensure greater market alignment.
The incorporation of Securities Services into the Financial Markets franchise of Standard Chartered (to form Financing and Securities Services) brings particular benefits in the Middle East where the combination of our market leading foreign exchange, fixed income, custody and prime capabilities provide a unique client value proposition. While 2020 was overshadowed by the impact of the COVID-19 pandemic, 2021 looks likely to be much of the same. However, amidst the uncertainty two positive events have unfolded in the Middle East in the last 12 months: The Israel Abraham Accord; and the resumption of relations with Qatar. These events have the potential to give the Middle East the boost its economy needs and could possibly represent a new era for the region, giving the other Gulf states the push they need to lift certain restrictions, which will allow more significant opportunities in the region for trade and business.
In August 2020, H.H. Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces in the United Arab Emirates (UAE), lifted its economic boycott of Israel, ending a decades long participation in the Arab League boycott of Israel.
The UAE-Israeli Boycott Repeal Law follows the announcement of the historic UAE-Israel Abraham Accord on 13 August 2020, brokered by US President Donald Trump. Under the UAE-Israel Abraham Accord, the UAE and Israel agreed to establish full diplomatic relations in exchange for Israel’s suspension of further annexation of Palestinian territories. In addition to the UAE-Israel Abraham Accord, there was a separate treaty signed between Israel and Bahrain (Bahrain-Israel Abraham Accord). With the signing of these two treaties, there is an expectation of new opportunities for business and trade across a wide range of industries and sectors in the region.
Many synergies may be unlocked for both economies (Israel and the UAE), which has already been enjoyed by Jordan and Egypt for several years. The loss of opportunity for trade between Arab nations and Israel is estimated to be between $10 billion, with a further $30 billion in oil exports lost in the last 10 years. Israel currently has the highest GDP in the Middle East, while the UAE has a slightly larger economy. There is now an expectation that many and wide-ranging opportunities will be created as a result of the region’s commitment to economic advancement. The synergies that may be unlocked include:
After Bahrain and Sudan, Oman is also expected to soon resume relations with Tel Aviv. Egypt and Jordan resumed trade relations with Israel several years ago with relatively little animosity from other Arab countries. The UAE and the KSA are considered the leaders in the Gulf, and Arab nations generally follow their lead, but it is still too early to assess the long-term outcome of the renewed relationships forged between the UAE and Israel. The acceptance of other less prominent Arab nations of the historically strained relations with Israel is yet to be observed.
Another development that occurred in the region would be the resumption of relations with Qatar. Following a breakthrough GCC summit held in the city of Al-Ula, KSA, in early January 2021, Saudi Arabia, the UAE, Bahrain and Egypt (the “Quartet”) ended a boycott of Qatar and diplomatic relations returned to normal. The signing of the “Al-Ula Declaration” marks the end of a three-and-a-half-year boycott against the State of Qatar, which was put in place in June 2017. The Declaration is said to be a tool to pave the way for the reestablishment of political and economic ties between Qatar and the Quartet.
Qatar’s economy is expected to return to a growth of 3.0% (2.1% prior) in 2021 following the dual shock of lower hydrocarbon prices and strict containment measures in Q2 and Q3-2020 to limit the spread of COVID-19.
The diplomatic dispute with neighbouring countries had already been negatively affecting sectors such as aviation, tourism and real estate prior to the COVID-19 shock. The lifting of restrictions on trade and travel between Qatar and the Quartet is expected to add impetus to the recovery already underway in these sectors.
Regionally, the boost to consumer and investor sentiment and lower perceived geo-political risk may contribute positively to economic outcomes, particularly ahead of significant events such as EXPO 2020, set to be hosted by Dubai in October 2021, and the 2022 FIFA World Cup in Qatar, Doha.
The UAE lifting restrictions on trade and travel to Qatar could add impetus to the UAE’s trade recovery following the dual shocks of COVID-19 and lower oil prices in 2020. However, this could mean downside risks to Oman’s trade and transit volume via its port and airport as it had benefited from the re-routing after the onset of the dispute. Developments in Qatar have been particularly significant for our Financing and Securities Services teams in both Doha and the DIFC hub, who have seen an immediate uptick in activity as regional clients are quick to follow the political lead.
