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Saudi Arabia and the UAE: Normalisation Not Divorce

Frictions between the two neighbours are apparent. Still, the ties between them will endure the current frissons.

Speculation is rife about an apparent dustup between Saudi Arabia and the UAE. Since early July, disagreements between the two Gulf monarchies over oil production quotas and trade tariffs have generated media headlines about the emergence of a new Middle East rivalry.

The very close strategic alliance between Riyadh and Abu Dhabi that has so significantly shaped developments in the Gulf region and the wider Middle East appears to have run its course. However, instead of a great rift, a return to a more pragmatic relationship that involves areas of competition and alignment is more likely.

The Bonds That Tie…

For the past five years, the close personal relationship between Saudi Crown Prince Mohammed bin Salman (aka MBS) and the Emirates’ most powerful decision-maker Mohamed bin Zayed (aka MBZ) has captured the imagination of both expert and casual observers. Before the pair emerged as the key movers in the relationship, Saudi–Emirati relations had been mostly cordial but reserved, with occasional moments of confrontation – a condition that is perhaps to be expected between a country that sees itself as the natural regional leader and its small but hyper-ambitious neighbour.

With the rise of MBS in Saudi Arabia, this pattern appears to have shifted. Together, Riyadh and Abu Dhabi led the military intervention in Yemen, sought to internationally isolate Qatar, and worked to present a united front against Iranian, Turkish and Islamist influence in the region. Both have also backed up, cheered on or actively promoted each other’s economic and foreign political endeavours. The UAE welcomed and championed Saudi Arabia’s Agenda Vision 2030, which aims to transform the Kingdom’s society and economy along lines familiar from the Emirates’ own development model. In turn, Riyadh backed the UAE’s assertive regional foreign policy, including the normalisation of ties with Israel.

… And the Differences

Over the past two years, signs of discord have gradually bubbled to the surface.

In 2019, the UAE withdrew most of its troops from Yemen. It has remained an active player in the country, looking to maintain a foothold in the south and seeking to project influence into the Red Sea and the Horn of Africa. However, it has made it clear that it would prefer the conflict to be primarily seen as Saudi Arabia’s war. Meanwhile, the official reconciliation with Qatar in January 2021 was driven by Riyadh, with Abu Dhabi making little effort to hide its lack of enthusiasm for rapprochement with Doha.

The distance between the Saudi and Emirati approaches to Israel has grown. The latter has just proceeded with the reciprocal opening of embassies in Abu Dhabi and Tel Aviv, while the former has become more muted about engagement with Israel, particularly in light of the flare-up of violence between Israelis and Palestinians in May this year.

Overall, the UAE appears intent on building a brand for itself that is separate from Saudi Arabia and somewhat removed from the wider regional context. Instead of protracted conflicts, the UAE wants to draw attention to global prestige projects such as its inter-faith initiatives, its Mars mission and the Expo, which is set to open in Dubai in October. Saudi Arabia would also prefer to focus on its domestic development, rather than regional affairs, but that is a luxury not available to the Kingdom given its status as a default leader of the Arab and Islamic worlds.

Yet, it is the economic sphere where signs are most obviously pointing towards an intensifying Saudi–Emirati competition. That is no accident. While various regional security problems remain acute, charting a future path for their countries’ economies is front and centre for decision- and policymakers in both Riyadh and Abu Dhabi. They must navigate two enormous challenges, both with oil at their core.

It’s the Economy, My Friend

Like other countries around the world, Saudi Arabia and the UAE have to find ways to recover from the economic crisis caused by the coronavirus pandemic. Lockdowns and the collapse in global oil demand have left deep holes in both countries’ budgets. At the same time, they are under ever-increasing pressure to diversify their economies by the global energy transition towards a low-carbon future.

Saudi Arabia, in particular, has much ground to make up. Its Vision 2030 reform programme had not been proceeding to plan even before the coronavirus pandemic hit. Now, Riyadh is trying to jumpstart its economy and it is becoming increasingly clear that some of its plans are putting it on a collision course with the UAE.

This includes the announcement last February that by 2024 Saudi Arabia will only work with foreign companies that have a regional headquarters in the Kingdom – a policy widely seen as trying to lure businesses away from Dubai. Moreover, a new Saudi airline is supposed to rival the national carriers of neighbouring countries and help transform the country into the kind of regional transport hub the UAE already is. Perhaps most dramatically, new Saudi tariffs on goods produced by companies with too many foreign workers, designed to increase the competitiveness of Saudi companies, directly target the UAE’s free zones and run roughshod over the GCC customs union.

At the same time, the UAE’s own economic development plans include aspects Riyadh does not like. This has become glaringly obvious in the recent discussions between OPEC members and other major oil producers over how to adjust production limits as the global economy emerges from the pandemic and oil demand increases. The UAE refused to accept a deal that would have only marginally increased its quota, which was championed by Saudi Arabia.

Abu Dhabi has an ambitious plan, backed up by investments worth over $120 billion, to expand its production capacity from 3.8 million barrels per day (bpd) to 5 million bpd by the end of the decade. Simply put, it wants to capitalise on what might be the last oil boom and sell as much of its ample reserves still in the ground as possible before the global balance tips in favour of electric cars and renewable energy sources.

Enduring Mutual Dependency

The acrimony between the two Gulf monarchies should not be entirely surprising. As they enter perhaps the last decade before the world reaches peak oil, the stakes could hardly be higher. With one last chance to future-proof their countries’ prosperity, both Riyadh and Abu Dhabi are understandably looking out for number one.

Nevertheless, it is far too early to speak of a full-blown feud. Many of the factors that brought on their alignment in the first place remain relevant, and there is still a lot that holds them together.

The UAE still needs Saudi Arabia. Abu Dhabi sees itself as a regional power in its own right and will bristle against any Saudi attempts to infringe on its autonomy. But it is also aware of its own limitations and realises that its regional agenda cannot succeed if it makes an enemy of the Kingdom. Moreover, Emirati leaders also know that their own country’s economic success will be worth very little if their much larger neighbour fails.

Likewise, for Saudi Arabia, cooperation with the UAE remains crucial. It is the most committed and militarily capable partner in the Kingdom’s struggle to push back against Iranian and, to a lesser extent, Turkish ambitions for regional leadership. Perhaps somewhat begrudgingly, Riyadh is also aware that beyond the Middle East, the UAE’s reputation and excellent ties to Washington and Beijing can be useful in attracting business interests to the region that the Kingdom itself wants to tap into.

In sum, the era of Saudi Arabia and the UAE working hand-in-glove is likely over and their bilateral relationship is set to be primarily characterised by pragmatism like it was before 2015. As they navigate challenging times ahead, spats and dustups – particularly in the economic arena – can be expected, but Riyadh and Abu Dhabi will remain tied to each other for years to come.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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