Brexit and the Gulf Cooperation Council: What Next?

The recent UK Supreme Court ruling against Boris Johnson has led to renewed discussions concerning the granting of further extensions from the European Union to negotiate Brexit, with the EU declaring mid-2020 as the latest potential suspension.[1] And so, while the contours, timing, and structure of Brexit remain far from clear, we can nonetheless anticipate some effects of Brexit on the states of the Gulf Cooperation Council (GCC).

As the deadline for Brexit looms, the United Kingdom is under increasing pressure to seek alternative trade arrangements, and the GCC appears to be an obvious candidate. Indeed, for its part, the European Union has been trying to negotiate a free-trade agreement with the GCC since 1988. As Jane Kinninmont has explained, a post-Brexit UK would “have far less leverage negotiating on a bilateral basis, but it would also have some more flexibility[2].” For instance, tariff barriers could be reduced on goods not produced domestically.

For the UK specifically, the GCC is already the fourth largest non-EU export market. In turn, the UK is the third-largest foreign investor in-value in the GCC, only being surpassed by the United States and China, according to the UN.[3] Further, the GCC comprises $50.83 billion of the UK’s total $57.19 billion worth of trade with the entire Middle East, and the UK is responsible for nearly one-third of trade between the EU and the GCC.[4] Therefore, London clearly has an opportunity to expand its trade presence with the GCC in particular. Yet, negotiations have been stalled due to political uncertainty in the UK and the continued fragmentation of the GCC. Further, with fears of a ‘no-deal Brexit’ far from quelled, a boost in Gulf investment in the UK is expected, particularly since these currencies are pegged to the U.S. dollar.[5]  However, these investments have tended to be limited to the property market alone.

With uncertainty prevailing over when and how Brexit could take place, the contours of a post-Brexit UK-GCC relationship also remain unclear. Hopes that the Saudi Aramco IPO could be housed in the City of London and thus strengthen the UK-Saudi relationship seem to have been dashed due to Brexit and general political uncertainty. Saudi Arabia is now said to be looking to list it in Tokyo instead.[6] As David Wearing in particular has pointed out, with China set to become the largest oil and gas importer by 2020, and India the second-largest by 2035, there may be a general recalibration away from Europe, (at least when it comes to major energy trade), and towards states where there is a greater and growing energy demand. [7]

Another potential complication in these trade relations unrelated to Brexit is the rising political opposition to the sale of UK military equipment to Saudi Arabia for use in Yemen. In June 2019, the UK Court of Appeals ruled that these specific arms sales are unlawful since there is a “clear risk” that such weapons could be used in “serious violation of international humanitarian law[8].” Still, in September, the UK government admitted to four total breaches of this court order,[9] and is currently appealing the ruling altogether. As a whole, the UK government (and the defense sector in particular) continues to enjoy close ties with the Saudi defense establishment. The U.S. this year passed a similar disapproval of arms deals with the Saudi government, however, this was ultimately vetoed by President Trump and sustained by the Senate. [10] However, due to next year’s American elections, the possibility of a new White House occupant and a reshuffled composition of Congress could lead to a change in policy concerning U.S. arms sales to Saudi Arabia. Should this occur, partners like the UK or the European Union would become increasingly important to Saudi Arabia and potentially to other allies in the GCC.

Issues pertaining to a lack of GCC-wide unity may also complicate the pursuit of new trade relations between the UK and the Gulf post-Brexit. As a result, this will likely lead to a general rise of bilateral agreements on both the EU side and on the GCC side. Such an arrangement could, in turn, spur greater competition among these neighbors, particularly those in the GCC which tend to export similar products. In March 2019, the UK expressed its interest in negotiating a free trade agreement with the GCC after Brexit is completed,[11] but it remains to be seen whether a functional GCC with which to negotiate will even exist given that three member states (Bahrain, Saudi Arabia, and the United Arab Emirates) are blockading a fourth (Qatar). Emirati Minister of Economy Sultan al-Mansouri noted that the UAE had already been approached by the UK about a post-Brexit trade deal but said that it could take years to formulate. Nonetheless, the UAE remains the UK’s fifth-largest trading partner outside of Europe, and the UK is the largest foreign direct investor in the UAE today.[12]

Further, as tensions with Iran mount and concerns rise about the perceived dwindling of American interest from the region, there will likely be more pressure on the UK and Europe to come into this space. A revival of the Joint Comprehensive Plan of Action (JCPOA) on behalf of the EU, whose leaders have expressed “continued commitment”[13] to a UN-backed non-proliferation pact with Iran, would be at odds with what UK Prime Minister Boris Johnson has called for thus far: a President Trump-(re)negotiated plan.[14] Therefore, it may be seen that there will be greater US-UK cooperation in the isolating of Iran and supporting the GCC, at least in terms of rhetoric and likely in terms of continued arms sales and trade as well.

Dr. Courtney Freer is a Non-Resident Fellow at Gulf International Forum and a Research Fellow at The Middle East Centre at London School of Economics and Political Science. 

References:

[1] Gabriela Baczynska. “Latest Brexit twist leaves EU expecting another delay beyond Oct.31.” Reuters. September 26, 2019

[2] Jane Kinninmont. “A Post-Brexit Britain Would Double Down on Middle East Alliances.” Chatham House. June 13, 2016

[3] Alicia Buller. “What will a no-deal Brexit mean for GCC residents and investors?” Arabian Business. September 02, 2019

[4] Grace Wermenbol. “Reconceptualizing Trade Relations: Brexit and the GCC.” Gulf International Forum. February 27, 2019

[5] Alicia Buller. “What will a no-deal Brexit mean for GCC residents and investors?” Arabian Business. September 02, 2019

[6] Summer Said, Benoit Faucon, Ben Dummett, and Julie Steinberg. “Aramco Proposes Two-Stage IPO, Shunning London, Hong Kong.” The Wall Street Journal. August 29, 2019

[7] Burhan Wazir. “How the Gulf’s petrodollars lubricate the British economy.” Newstatesman. September 12, 2018

[8] “UK arms sales to Saudi Arabia unlawful, court rules.” BBC News. June 20, 2019

[9] Dominic Dudley. “UK Admits More Breaches Of Court Order Banning Arms Sales To Saudi Arabia, Says Other Cases Could Follow.” Forbes. September 26, 2019

[10] Patricia Zengerle. “U.S. House rejects Saudi weapons sales; Trump to veto.” Reuters. July 17, 2019

[11] Sarmad Khan. “The UK seeks post-Brexit free trade agreement with GCC, British minister says.” The National. March 31, 2019

[12] Sarmad Khan. “The UK seeks post-Brexit free trade agreement with GCC, British minister says.” The National. March 31, 2019

[13] Andrew Rettman. “EU countries turn screw on Iran.” EUobserver. September 24, 2019

[14] Peter Walker, Julian Borger and Kevin Rawlinson. “Boris Johnson calls for ‘Trump deal’ to fix Iran nuclear standoff.” The Guardian. September 23, 2019