The “New Normal” in Saudi-UAE Relations — Tying China In

This piece is part of the series “All About China”—a journey into the history and diverse culture of China through short articles that shed light on the lasting imprint of China’s past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations. Read more ...

The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) are the dominant economic players in the Middle East and North Africa (MENA), accounting for more than half the region’s imports and exports. Over the past decade, with the traditional power centers of Egypt, Iraq, and Syria weakened, these same two countries have become more assertive and influential actors in regional and global affairs. Importantly, they also have enjoyed a period of unprecedented close cooperation.

In the wake of the 2011 Arab Spring uprisings, Riyadh and Abu Dhabi forged a strategic alliance,[1] rooted in a shared interest in ensuring domestic stability and regime survival, blunting Iranian expansionism, and offsetting the perceived US retreat from its traditional role as security guarantor. In 2016, they established the Saudi-Emirati Coordination Council, which paved the way for the crafting of the “Al Azam Strategy,” a joint vision for intensifying economic and military cooperation.[2]  

But several policy disagreements between Saudi Arabia and the UAE recently burst into public view, raising questions about the future shape and direction of the relationship. The joint statement issued at the conclusion of Saudi Crown Prince Mohammed bin Salman’s visit to Abu Dhabi last December affirmed the two countries’ extensive and enduring friendship.[3] Yet, the invocation of shared visions[4] masks a complex and increasingly competitive relationship as Saudi Arabia and the UAE push to diversify their economies and position themselves to profit from China’s growing capabilities and extensive involvement in the Gulf, wider Middle East, and East Africa.

Post-Arab Spring Close Cooperation

The realignment in Gulf politics that occurred after 2011 around a Riyadh-Abu Dhabi axis focused on minimizing the impact of the Arab Spring protests on the Gulf States and their allies in the region (e.g., in Egypt, Jordan and Morocco) as well as on thwarting Iran’s efforts to exploit the unrest in its bid for regional hegemony. Saudi Arabia and the UAE thus emerged at the forefront of attempts to “control and shape the direction of the changes coursing through the Arab world.”[5] The regional policies they followed to do so were marked by proactive interventionism and power projection.[6]

Buoyed by a close personal relationship between de facto rulers Crown Prince Mohammed bin Salman (MbS) and Abu Dhabi Crown Prince Mohammed bin Zayed (MbZ),[7] Saudi Arabia and the UAE coordinated their use of financial and military power in the Gulf, the wider MENA region, and the Horn of Africa. They sought to bolster fellow monarchies in Jordan and Bahrain with economic aid and, in the latter case, troops. The numerous other initiatives they took in tandem included providing support for the coup d’état in Egypt led by General Abd al-Fattah al-Sisi, imposing an embargo against Qatar in 2017, lobbying against the Iran nuclear deal and in favor of the Trump administration’s “maximum pressure” campaign, launching a military intervention in Yemen, adopting an adversarial posture toward Turkey, collaborating to broker a peace deal between Ethiopia and Eritrea, and furnishing Sudan with aid and investment.[8]

Towards a “New Normal”

Yet, during the past two years, cracks in the Riyadh-Abu Dhabi axis have appeared. This is not surprising. After all, it is natural for even the closest allies’ priorities and approaches to differ. That said, it is important to emphasize that the recent period of “lockstep friendship” between Saudi Arabia and the UAE is an anomaly.[9] The UAE had long viewed Saudi Arabia as being among its greatest security threats.[10] Relations between the two countries, though outwardly cordial, had been flavored with latent tension.[11] The Treaty of Jeddah, which was to have resolved the Saudi-Emirati border dispute, remains contentious.[12] In the mid-2000s, Saudi Arabia intervened to thwart the UAE-Qatar maritime causeway and pipeline projects.[13] Less than a month after the GCC had approved plans in 2009 to create a monetary union with a common central bank located in Riyadh (not Dubai), the UAE abruptly announced its withdrawal; and the Saudis responded by temporarily closing the border.[14]

Thereafter, even as they followed broadly compatible regional policies, Riyadh and Abu Dhabi’s threat perceptions and understandings of regional conflicts differed. The former’s staunchly pro-Sunni sectarian, as opposed to the latter’s stridently “pro-secularist” orientations translated into divergent approaches to the handling of the post-2011 Arab Spring regional crises.[15] All along, Emirati leaders, unlike their Saudi counterparts, have viewed the Muslim Brotherhood (MB) and MB-inspired organizations that adopt political Islam as the most serious threat to the survival of the Gulf monarchies.[16] The leadership in Riyadh, though, has regarded Iran as the paramount threat.[17] As a result, Abu Dhabi has been more aggressive than Riyadh in its efforts to crush the Brotherhood but more cautious in attempts to counter Iranian influence and expansionism. In Libya, concern about the rise of political Islam led Abu Dhabi to play a more active operational role than Riyadh, in support of Khalifa Haftar, the commander of the Libya National Army (LNA).

Policy divergences were observable in other cases as well. With respect to Yemen, for example, although Saudi Arabia and the UAE entered the conflict in full agreement, differences soon began to emerge over the conduct of the war, during which the two allies supported distinct local forces.[18] In July 2019, the UAE downsized its forces in Yemen — an action to which King Salman of Saudi Arabia reportedly reacted with “extreme irritation.”[19] Since then, Saudi Arabia and the UAE have focused on consolidating their respective positions in strategic areas of the country.

Over the past two years, the ‘new era of decisive joint action’ between Riyadh and Abu Dhabi has waned. Abu Dhabi and Riyadh alike have changed course, as their assertive interventionist policies collided with the hard realities of a costly stalemate in Yemen, Moscow’s success in maintaining the Assad regime in power, and the growing risk of a military confrontation with Iran. A new pattern of conduct has developed — one aimed at regional de-escalation and dialogue. Correspondingly, Saudi-Emirati relations have entered a new phase.

In recalibrating their regional relationships, Abu Dhabi and Riyadh have displayed similar pragmatism. However, their recent moves do not appear to have been closely coordinated and in some instances have been out of sync. In September 2020, with the signing of the Abraham Accords, the UAE was out ahead of Saudi Arabia in normalizing relations with Israel. Riyadh has yet to follow suit. This pattern was reversed last January, when Saudi Arabia acted first to open its airspace, land, and sea borders with Qatar. Although the UAE signed the Al-Ula Statement, which brought the intra-GCC rift officially to an end, this was a ‘reluctant reconciliation,’ as the Emirates and Qatar remain sharply at odds ideologically. Saudi Arabia launched a dialogue with Iran in Baghdad last April; since then, multiple rounds of bilateral discussions have taken place.[20] Meanwhile, Abu Dhabi has taken its own steps to de-escalate tension with Iran.[21] Similarly, it has made its own diplomatic overtures to Turkey and Syria.[22]

Thus, Saudi and Emirati regional diplomacy, while  headed in the same general direction nonetheless reveals a certain loosening of the tight policy coordination of just a few years ago. It also suggests a desire on the part of Abu Dhabi to maintain a degree of independence from Riyadh in managing complex regional relationships. This is not surprising, as the UAE has never been a mere appendage of Saudi Arabia.[23] Nor, as the UAE has become a more capable, active, and ambitious actor, has it warmed to the idea of serving as its larger neighbor’s junior partner. Thus, while the UAE’s military adventurism has been scaled back and diplomacy prioritized, the assertive and self-reliant features of its foreign policy remain intact. As a result, a “new normal” in the Saudi-Emirati relationship has taken shape, one where their geopolitical differences and aspirations for regional leadership and influence have come to the fore[24] and where the UAE appears determined to build its own brand.

Heightened Saudi-Emirati Economic Competition

The current pattern of Saudi-Emirati relations — marked by separate though not necessarily conflicting diplomacy-first approaches to regional relations — also consists of heightened economic competition. The Covid-19 pandemic, combined with reduced global oil prices, highlighted the perils of over-reliance on oil for growth and intensified pressure on Gulf governments to accelerate economic diversification. Saudi Arabia, the UAE, and the other Gulf states are scrambling to lay the foundation for a post-hydrocarbon future.

Stiffening economic competition between Saudi Arabia and the UAE reflects the mounting pressure they are facing and the overlapping strategies they are following to diversify away from oil. The standoff between Saudi Arabia and the UAE over how quickly to increase oil production levels amid the global pandemic recovery[25] — unusual in that their spat burst into public view — exposed a growing economic rivalry.

In preparing for a post-hydrocarbon future, Saudi Arabia and the UAE are simultaneously seeking to develop some of the same sectors, notably tourism, financial services, petrochemicals, and technology.[26] Of the two countries, the UAE made the earlier start and enjoys first-mover advantage in transforming itself into a business, trade, and tourism hub. Of late, however, Saudi Arabia has mounted a challenge, moving to expand its tourism sector[27] and offering a larger market and loosening lifestyle restrictions to attract investors, international companies, and foreign talent.[28] The Emirates have implemented counter-measures, such as issuing new visa rules and switching to a Monday-Friday work week.[29] But the competition has not stopped there. Riyadh’s efforts to make the kingdom the Arabian Peninsula’s leading destination for business and investment have included the announcement last February that companies would risk losing lucrative government contracts if they did not relocate their regional headquarters to Saudi Arabia by 2024 — a move widely interpreted as targeting Dubai.[30] 

Tying China In

Given that Saudi and Emirati officials alike regard logistics hubs as drivers of diversification,[31] it is not surprising that competition between them in the maritime transport and logistics sector has been heating up. Dubai is among the world’s top five global hubs for maritime shipping and logistics.[32] The Jebel Ali Port and Free Zone (JAFZA) accounts for one-third of the emirate’s GDP.[33] Indeed, Jebel Ali is the linchpin of the UAE’s strategy to position itself as a “nexus state.”[34]

But Saudi Arabia, in line with “Vision 2030,” is also making a bid to become a leading regional and global logistics hub. Riyadh has launched an ambitious National Logistics and Transport Strategy.[35] Plans are underway to turn King Abdulaziz Port Dammam (KAPD) into a mega-container hub.[36] Maersk recently reached an agreement with Saudi Arabia Port Authority (Mawani) to establish a new, integrated logistics port in Jeddah Islamic Port.[37] And like the UAE, Saudi Arabia has embarked on efforts to develop new outlets on the Red Sea to control trade flows and strengthen its position in global supply chains.[38]

Intensifying Saudi-Emirati competition in the maritime transport and logistics sector is part of the larger intra-Gulf jockeying for position to capture the increasing interregional cargo trade volumes flowing westward from Asia. Importantly, the push by the UAE and Saudi Arabia to expand their shipping and logistics capacity is occurring against the backdrop of the growing Chinese economic presence in the Gulf and Red Sea/Horn of Africa and Beijing’s efforts to create a production and trade network along the Maritime Silk Road (MSR). Saudi Arabia and the UAE have sought to leverage China’s deepening economic engagement in the Gulf and Red Sea arenas for the purpose of advancing their own economic diversification and geopolitical aims.

The UAE is China’s primary economic partner in the Gulf.[39] Dubai Port and Khalifa Port in Abu Dhabi have gradually become regional hub ports for China’s foreign trade and port and shipping enterprises. Nearly two-thirds of Chinese exports to Europe, the Middle East and Africa pass through Emirati ports.[40] In recent years, Chinese state-owned companies have played a significant role as builders, owners, and operators of terminals and other port infrastructure in the Gulf.[41] In the case of the Emirates, Chinese investment has targeted infrastructure with a focus on ports and associated industrial zones, bolstering the UAE’s role as a key node in the MSR.[42] In December 2018, Abu Dhabi Ports (ADP) entered into a 35-year concession agreement with China Ocean Shipping Company (COSCO), which enabled the latter to operate and develop a container terminal at Khalifa Port in Abu Dhabi to support trade generated by the Belt and Road Initiative.[43] Dubai’s Silk Road Strategy (DSR), announced in March 2019, is a plan to augment Dubai’s role as a strategic global trade link that, as its name indicates, expressly aims to complement China’s Maritime Silk Road projects.[44] Yiwu Market UAE, an overseas warehouse trade city project in the heart of Jebel Ali Free Zone (JAFZA) jointly built by Zhejiang China Commodity City Group (CCC) and DP World and located opposite the Dubai Expo 2020 site, launched a year ago.[45]

The UAE is focused on securing its first-mover advantage as part of the MSR. But Riyadh is determined to capitalize on the kingdom being the only country with coastal access to both the Persian Gulf and the Red Sea. Although energy continues to be the core of Sino-Saudi cooperation, efforts to harmonize “Vision 2030” and the MSR and thus boost the kingdom’s prospects for becoming a global logistics hub are making headway.[46] In March 2017, Saudi Aramco awarded China Harbour Engineering Company (CHEC), which has implemented over two dozen projects in the kingdom, a contract for the construction of a commercial port at Jazan Economic City.[47] Last January, COSCO Shipping Ports (CSPL) acquired a 20% stake in the Red Sea Gateway Terminal (RSGT) at the Jeddah Islamic Port.[48] The next month, Hutchison Ports signed an agreement to invest in and operate Saudi Arabia’s multipurpose Jazan City for Primary and Downstream Industries (JCPDI) port and industrial park on the Red Sea.[49] Saudi Ports Authority (MAWANI) recently inaugurated the Gulf China Service (GCS), a weekly direct service between King Abdulaziz Port in Dammam and Ningbo, China.[50]

Conclusion

Saudi-UAE relations are settling into a “new normal” marked by the loosening of regional policy coordination and increasing economic competition, as both countries vie for influence, pursue their diversification strategies, and position themselves to benefit from China’s emergence as a global power.

In charting their paths for the future, Saudi Arabia and the UAE alike have come to regard the maritime sector as a key contributor to the economic diversification process. Situated at the nexus of the East and West, both are aiming to become thriving global trade hubs — goals that mesh comfortably with China’s ambition to create a 21st Century Maritime Silk Road. This alignment of interests between China and its two Gulf Arab partners has already produced synergies in the shipping and logistics domain.

Currently, the volume of container traffic in the region handled by ports in the UAE is nearly twice that of Saudi Arabia[51] — a dominance the Emirates is unlikely to relinquish any time soon. Nevertheless, as Saudi Arabia presses forward with its maritime agenda the UAE’s advantage in terms of capacities, market shares, international investments, and trade connections can be expected to narrow. And Chinese commercial engagement is likely to play a key role in how this race unfolds.

Saudi Arabia and the Emirates are both striving to reduce operational costs and facilitate faster deliveries, which will inexorably lead them to adopt smart port technologies and integrate the port value chain through digital platforms, creating more opportunities for cooperation with China. In pursuing such cooperation, Saudi Arabia and the UAE will, in all probability, find themselves competing to gain China’s favor.

The temptation for Beijing to exploit this rivalry might be tempered by the desire to avoid becoming caught in a zero-sum dynamic. But it will take more than deft management of Saudi-UAE competition by all three parties to deliver on the promise of win-win outcomes. The recent spate of attacks unleashed by the Houthis on Abu Dhabi and ISIS fighters in Syria and Iraq as well as the impasse in negotiations to revive the JCPOA stand as a stark warning: the diplomacy-first approaches to regional relations pursued separately by Riyadh and Abu Dhabi may not prove any more successful in fostering the stability required to lay the foundation for shared prosperity in the post-oil era than did the interventionism they recently pursued in tandem.