Israel and the United Arab Emirates are normalizing relations, according to an announcement by President Trump.
This is a huge deal for symbolic reasons, but the real importance of this peace will be economic opportunity. Practically-speaking the two countries were not facing each other in combat, but the UAE had refused to recognize Israel’s independence since the UAE’s founding in 1971. Now, the United Arab Emirates—a conglomeration of small city-states on the eastern side of the Arabian peninsula—becomes the first Persian Gulf country to formalize relations with Israel.
The hope is this will lead to other agreements between Israel and regional neighbors. Israeli Prime Minister Benyamin Netanyahu visited Oman two years ago, so perhaps Oman is next. Bahrain could be next, because historically it has been more diverse and less driven by ideology. Saudi Arabia is unlikely to follow suit anytime soon since its king, Salman, has known antipathy to Israel, often condemns Israel and in 2001 told the United States ambassador that Israel committed the terrorist attacks on 9/11. It is still illegal for Israelis to visit Saudi Arabia or for non-Muslims to publicly worship in Saudi Arabia. Still, perhaps this enlightened move by the UAE will pressure other Gulf countries—including Saudi Arabia—to follow eventually.
Here is why this agreement makes so much sense economically for both countries:
- Oil supply for Israel—currently the best local source of oil that Israel can buy in any quantity is Kurdish oil from Iraq, which travels via Turkey. The Turkish leader, President Recep Tayyip Erdogan, is confrontational with Israel, and Iraq is heavily influenced by an Iranian regime that is enemies with Israel. Therefore, Kurdish oil is not necessarily reliable for Israel. Oil from the UAE (the national oil company there is named Adnoc) would be a great economic and strategic opportunity for Israel.
- Oil sales for the UAE—the UAE can obtain a new oil customer. In 2015, Israel used 240,000 barrels of oil per day, all imported. It is often said that oil is a global commodity, and that is largely true. However, there has been some interference over the years that proved the exception. In the 1970s, OPEC countries embargoed the U.S. and some allies at times. The U.S. government has halted imports from Venezuela recently. Gulf Arab countries have always refused to sell to Israel, even when Saudi Arabia’s oil company was owned by American firms. Now, Adnoc has one more eager market to send oil to, meaning it might be able raise its prices a little. (Notably, Saudi Arabia still won’t sell to Israel, so it can’t compete). This won’t raise global oil prices, but opening the Israeli market would improve Adnoc’s revenue.
- Emirati students at Israeli universities—it is a good fit, because already more than 15% of students at Israeli universities are Arab, and the schools have all the religious and cultural amenities Emirati students might expect.
- Emirati money in Israeli business ventures—Israel is famous for its startup scene, and wealthy Emiratis could use new places to make investments as the local real estate market and economy have suffered recently.
- Israeli tourism in the UAE—Israelis travel quite a lot. Many travel after their army service. In 2017, more nearly half of all Israelis traveled abroad. The UAE could be a huge destination with Israelis finally able to experience a Persian Gulf country and Arabian culture after being forbidden for all of these years. And it’s practically next door. The UAE economy was already suffering before the coronavirus, and any boost to local tourism now will help. Moreover, India and east Asia are top destinations for Israel. If Emirates or Etihad begin flights to Tel Aviv, their existing connections to multiple cities in India and other parts of Asia through Dubai and Abu Dhabi could be highly sought by Israeli travelers.
- A new market to sell Israeli talent—Israel is a small country with many educated professionals. The United Arab Emirates has been a destination for foreign talent over the last couple of decades. Already one emirate, Dubai, has a synagogue, and another, Abu Dhabi, is building a synagogue. Many Jewish Israelis are not religious, but these institutions speak to the openness for Israelis to live and work there. And the UAE will be a short flight from Tel Aviv if direct travel begins.
- The first Gulf businesses in a new market—Israel has the largest non-petro economy in the Middle East other than Turkey. It is a great opportunity for UAE to be the first Gulf country to tap that economy and the market and expertise it offers.