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UAE-Israel deal: Historic, not game-changing, at first glance

  • If Camp David 1978 (Egypt-Israel) was a geopolitical earthquake, the UAE-Israel deal is more of a tremor

  • Palestine ceased being a transnational rallying call for Muslim politicians long ago and annexations were doubtful

  • Both (particularly Abu Dhabi on the UAE side) have long-shared close relations with the US and opposition to Iran

UAE-Israel deal: Historic, not game-changing, at first glance
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

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Tellimer Research
14 August 2020
Published byTellimer Research

Historic but not game-changing

At face value, the UAE’s formal recognition of Israel and the latter’s suspension of West Bank annexation plans look, respectively, like an unprecedented geopolitical shift by a GCC state and a stark reversal of a potentially inflammatory Israeli policy.

No doubt this is a meaningful and historic agreement but it should not be over-hyped.

  • The two countries have never fought a war, both are very close to the US, and both oppose Iran. In other words, whether there has been public engagement or not, the two have been aligned, in terms of their two most important geopolitical relationships, for many years. This agreement does not equate to the sort of historical pivot of the 1978 Egypt-Israel Camp David Accords (bringing to an end a history of wars, re-positioning Egypt from the geopolitical orbit of the USSR to that of the US, and creating the second-largest recipient of US aid, behind Israel).

  • Palestine has long ceased to be a consistent transnational rallying call for populist Muslim politicians in the manner seen a generation ago (even terror groups which operate under the banner, rather than the substance, of Islam have tended, in recent decades, to focus on localised causes, eg Iraq, Kashmir, Mindanao, Syria, and the Sahel, in contrast to, for example, Al Qaeda in the era of Bin Laden).

  • Whether the annexation of parts of the West Bank would have transitioned, in any event, from PM Netanyahu’s election pledge to an implemented policy is questionable.

Key regional geopolitical risk factors unchanged

Overall, the deal does not, at first glance, alter the defining geopolitical features of the Middle East region (below) and, therefore does not alter the risk assessment for investors in the region:

  • Stress on the GCC economic model built on hydrocarbon revenues, citizen welfare, expatriate labour, and fixed currencies;

  • Waning interest of the US in the region’s oil and gas (and an inverse, but not as yet proportionate, increase in the interest of China) and less predictability in the security commitment of the US to its allies in the region;

  • Antagonism and competition for proxy influence (eg in Iraq, Lebanon) between Iran, on the one hand, and Israel, Saudi, and the UAE on the other, and the shrinking neutral space for others (eg Lebanon, Oman, Pakistan);

  • Schism within the GCC between Saudi, UAE and Bahrain, on the one hand, and Qatar, on the other;

  • Opposition of, particularly, the UAE to the Muslim Brotherhood and any suspected supporter (Qatar, Turkey), and a policy of curtailing any potential regional arena for the MB politics to exert an influence (eg Libya, Yemen);

  • The re-emergence, over the last decade, of Turkey as an influential regional power.

  • Inconsistent cooperation between Saudi and the UAE (divergence in priorities in the Yemen war predate this difference on the recognition of Israel).

Next moves: Saudi, Turkey, Iran

We do not want to project this as a definitive view just yet because, at the time of writing, the reactions of three regional powers remains to be seen.

  • Saudi: does not formally recognise Israel and still projects itself as a transnational leader of the international Muslim community (the King’s formal title internally is the “Custodian of the Two Holy Mosques”), despite the fragmentation and diversity of that community and other aspirants to that role;

  • Turkey: the first Muslim-majority country to recognise Israel, in 1949, albeit under very different leadership from President Erdogan, and decades before it found itself on the opposite side of the scramble for control of East Mediterranean gas); and

  • Iran: its continuing opposition to Israel is entirely predictable but its comment on the UAE is much more intriguing.

  • Follow-on agreements: the precedent set by the UAE may lead others to follow both within the GCC and further afield, however note that it took about 25 years for Jordan to follow the Egypt agreement with Israel and the issue of Israel, while not the international focus it once was, still remains an emotive, politically-charged subject in many countries.

UAE benefit and risk

The main immediate benefit for the UAE is less constrained cooperation with Israel on intelligence sharing and technology to counter Iran and domestic security threats.

The main downside risk for the UAE, with its non-oil economy dependent on real estate, transport and tourism, may be that its agreement with Israel provokes a security threat from those who view the deal not as a success in stopping annexation but as a failure to get Israel to remove its troops from the West Bank (ie revert to pre-1967 borders for the Palestinians) and are prepared to make their point violently.