Gulf states see risk, opportunity as Brexit nears

When leaders of the European Union and Arab League met in Egypt this weekend for an unprecedented summit aimed at tackling issues of security and migration, it was not only Middle Eastern crises, but the looming uncertainty over Brexit on delegates’ minds. 

With just 32 days to go before the United Kingdom is scheduled to leave the world’s largest trading bloc – and with no agreement on how this will be done, or what it will mean – last-minute discussions between British Prime Minister Theresa May and her EU counterparts on the fringes of the Sharm el-Sheikh meeting were a major focus for many in attendance.

With the clock ticking ever more loudly towards Brexit day on March 29, there is also increasing uncertainty over the future of long-standing economic, political and security ties between Great Britain and the Middle East region, specifically the Gulf.

“We have no idea what will happen after 11pm on March 29,” one Emirati Dubai-based real estate specialist told Asia Times on condition of anonymity, given the sensitivity of the subject.

“It’s beginning to keep me up at night, and I’m certainly not the only one.”

Future fears

For some, this nervousness is due to the unknown impact Brexit will have on existing agreements, such as the Turkey-EU Customs Union, which currently includes the UK under an EU trading umbrella.

That coverage will be folded up on March 29 if there is no agreement between London and the 27 other nations of the EU — potentially exposing the $23 billion in annual trade between Turkey and the UK to tariffs and quotas.

Last week, the UK government confirmed that there was no prospect of a “roll-over” deal to cover UK-Turkish trade being in place by March 29, leading to an angry outburst from Adam Marshall, the director-general of the British Chambers of Commerce.

“[This is] yet another example where politicians have overpromised and underdelivered — and it is businesses and consumers . . . that will pay the price,” he told reporters in London on February 21.

Others fear that a post-Brexit Britain will be trying to negotiate new trade deals from a position of isolation and weakness.

“With the UK needing to sign new trade deals, there is a perception in the Gulf that it is not in a strong position,” said Dr Marc Owen Jones, an Assistant Professor of Middle Eastern Studies at Hamad bin Khalifa University in Doha.

“The competition in the region is also pretty tough — you’ve got China emerging with its Silk Road project, the Gulf countries courting Russia, and of course there will be the EU acting as a bloc.”

This may mean the UK being increasingly compelled to lobby on behalf of Gulf monarchies in order to obtain new trade deals of its own.

“We have already seen the UK Foreign Secretary, Jeremy Hunt, trying to push Germany into abandoning its arms embargo on Saudi Arabia,” Owen Jones adds, referring to an embargo Berlin introduced following the October 2018 murder of Saudi columnist Jamal Khashoggi.

Tailored trade deals

Yet for some, Brexit represents a much more positive future for the UK’s relationship with the region.

Following departure from the EU, “The UK would be able to conclude its own free-trade deals with Arab countries,” David Morgan, from the Arab-British Chamber of Commerce, told Asia Times.

Some see this as enabling the UK to strike more flexible, tailored trade deals than it is currently able to make as part of a 28-nation bloc.

“I think [Brexit] is a very positive story, certainly for this part of the world,” Simon Penny, UK Trade Commissioner for the Middle East, Afghanistan and Pakistan, told reporters this past December in Dubai.

The UK’s ties to the region go back centuries, with the 20th century seeing Britain rapidly change from a major Middle Eastern colonial power to a significant trading and security partner.

The six nations of the Gulf Cooperation Council (GCC) have become the focus for much of this relationship in recent times.

According to a 2017 speech in London by British Secretary of State for International Trade, Liam Fox, “UK companies export over £30 billion worth of goods and services to the GCC nations every year, more than to China, and almost twice the value of our exports to India.”

Weapons

Thousands of British companies and expats are also resident in the Gulf, while the UK also has permanent military facilities in Kuwait, Bahrain and Oman, with which it enjoys strong defense ties. Indeed, the GCC is a major export market for British weaponry, with Qatar recently purchasing £5 billion of British fighter jets, while Saudi Arabia, the UAE and Oman are also major military customers.

“In the Gulf, Britain is still seen as a valuable partner, militarily and economically, as well as in terms of its access to the US, the EU and its UN Security Council seat,” said Professor Anoush Ehteshami, director of the Institute for Middle Eastern and Islamic Studies at Durham University. “The UK has very good relations with all the GCC countries.”

At the same time, the Gulf states have a high profile in the UK, via ownership of football clubs, prestige real estate projects and a close relationship in the worlds of banking and finance.

The UK economy will also likely have a heightened need for Gulf investment — and for Gulf energy — post-Brexit.

“In recent years, the UK government has cut back on solar power and nuclear power and shelved wave power,” said Dr Ehteshami, “while demand for energy continues to rise, making the UK more dependent on oil and gas from the Gulf.”

Crashing Out?

The prospect of a chaotic, ‘no-deal’ exit, recently described as “increased” by European Commission First Vice President Frans Timmermans, is likely to have a major impact on UK-Gulf relations. 

Such a scenario could lead to major economic disruption and a further fall in the British currency, the pound. The Bank of England itself estimates such a scenario would mean an 8% fall in the UK’s GDP and a near doubling of unemployment.

“If there’s no deal, Gulf investors will be very cautious about engaging with the UK market,” warned Ehteshami. “They will certainly want to wait for the dust to settle.”

For Britons in the Gulf, too, such a crash is also a fear, even if they may be far from its epicenter.

“One way or another, salaries and conditions here are tied to back home,” Owen Jones remarked from Doha.

“If the pound falls and economic conditions [in the UK] deteriorate, Gulf employers will be aware of this.”

The Gulf states may soon see an influx of Britons looking for jobs in their cities, with expatriate salaries dipping in turn.