The Abraham Accords, which opened up the full relations of the State of Israel with the United Arab Emirates and Bahrain, and indirectly with other countries in the Gulf – varied consequences on regional politics, on security and certainly on the economy as well. To a large extent, they constitute a “game-changer” in the status of the State of Israel.
Reaching them was made possible mainly thanks to the economic and military strength of the State of Israel, which caused the signing of the agreements even without the Israeli-Palestinian conflict being resolved. To this, we have to add the help of Iran, which in fact being a threat to the entire region – pushed the Gulf into Israel’s arms.
The agreements were signed exactly two years ago. At first, the Gulf countries, especially Saudi Arabia, signaled their readiness. After that, the UAE and Bahrain were the first to normalize relations. It is clear to everyone that Saudi Arabia under the leadership of Crown Prince Mohammed bin Salman, although it did not officially join, gave its consent to the step of the Emirates and the Bahrainis.
Bahraini Crown Prince Salman with the interim Prime Minister Naftali Bennett / Photo: Haim Tzach-L.A.M.
An agreement of a type that has not yet been recognized
The agreement with the United Arab Emirates brought Israel a peace agreement with an Arab country of a type that had not yet been recognized. Warm, without past sediments of wars, and with many common interests. Israel’s ambassador in Abu Dhabi, Amir Hayek, defines it as a meeting between cousins who have not seen each other for many years.
And it’s not just feelings – the numbers speak for themselves. The volume of trade between Israel and the United Arab Emirates reached about 1.4 billion dollars. Not including services, which are estimated at another 200-300 million dollars, and defense exports, the information about which is confidential. Throughout the year 2021, the volume of trade between the countries reached about one billion dollars, with services adding about 200 million dollars.
The head of the Foreign Trade Administration in the Ministry of Economy, Ohad Cohen, says that the entire export has grown at a double-digit rate every year for the past two years. According to estimates, total exports will increase by 13% by the end of the year. The growth rate in exports in particular and trade in general with the United Arab Emirates is more impressive than these figures.
Cohen points out that Israel and the United Arab Emirates are at the place they estimated they would reach in terms of the volume of trade. “A lot of people initially thought that on the streets of Abu Dhabi and Dubai there were trees growing money that would rain down on us,” says Cohen. “The amount of delegations that left was huge, and many that left were without a realistic connection to what the Emirates has to offer.”
Export diversification is important
According to him, diversity is important. That is, the inclusion of as many branches as possible in the export segmentation. Cohen hopes that now that an economic annex has been appointed, the process will be more orderly. He mentions that the free trade agreement which is in the process of ratification in Israel will soon enter into force, after it has already been ratified in the United Arab Emirates.
King Hamed with former Prime Minister Naftali Bennett / Photo: Eyal Yitzhar
A figure that cools the enthusiasm concerns the most significant branch of trade – diamonds, which makes up more than half of the volume of trade. The Emirati Minister of Foreign Trade, Dr. Thani Al-Zayudi, tells Globes that the cultural differences resulted in quite a few misunderstandings in the contacts between the businessmen of the two countries. “The Israelis thought that money would flow easily from here, but business is business. You need to build trust, understand the local ecosystem – and thus move forward. For an investment, there needs to be a tangible product that has proven itself.”
Indeed, the Emirati investment sector is faltering. Alongside the huge investment of the Mobdala wealth fund in the purchase of Delek Drilling’s stake in the Tamar reservoir, a deal worth about one billion dollars, there is another 100 million dollars from the United Arab Emirates that are invested in venture capital funds in Israel.
Recently, a new R&D fund of the two countries was established in the amount of 100 million dollars, with each country investing half of the amount. “This fund is supposed to invest in the development of new products with basic conditions of structured innovation and the potential of a real impact in the fields that are important to us,” explains Minister Al-Zayudi .
The most famous fund of all that was born as a result of the Abraham Accords in the amount of 10 billion dollars, which was promised by ruler Mohammed bin Zayed to former Prime Minister Benjamin Netanyahu, entered a kind of freeze due to the political situation in Israel. In recent months it has indeed been thawed, but it has not yet begun the actual process of finding serious investments in Israel.
Hayek says that in the United Arab Emirates, start-ups are less involved, and the big money will only be invested in large infrastructure projects. However, the attempt so far has not been successful. The Emirati ports giant DP approached the Haifa port operation tender as part of its privatization process, but withdrew. The explanation given was that it does not fit into its economic and strategic planning. However, those who were involved in the process say that they did not like the coercion of the Israeli partner.
The Israeli ambassador in Abu Dhabi adds that the state must work to shorten processes and bureaucracy, and help the emirates enter into large infrastructure projects. “They would be happy, for example, to establish an airport at sea, they have experience in this. Or, to build a Palm neighborhood, like in Dubai, in front of the Tel Aviv beaches.”
The signing of the free trade agreement with the United Arab Emirates / Photo: Anuj Taylor, Strap Studios
“A relationship that turned into a unicorn”
In the ten months in office, Hayek managed to host two visits by the president and two visits by heads of government – along with dozens of ministers – in Abu Dhabi. “The relationship started as a startup and is turning into a unicorn,” he says. “By the end of the year, they will be in 15th place in trade with Israel and in two or three years in the top 10 – with a trade volume of at least 5 billion dollars.”
And here, he issues a far-reaching statement: “The United Arab Emirates will become the number one growth engine of the Israeli economy and industry, because they have complementary R&D infrastructures to Israel, there is huge Emirati or foreign capital that is earmarked for R&D investments and innovation. Also, there is manpower. Of any kind. Another important figure is the prices of the raw materials, which are among the best in the world because they are a world trade center. This last point is the access to many markets in the world.”
Hayek adds that the increase in trade and cooperation give good reasons for joining the agreements of other countries that are following closely. “I would like to assume that this will motivate more countries from the Gulf to come to the table. We are building a new Middle East economy – and those who don’t join now may miss the train.”
Minister al-Zayudi, who has already visited Israel, says that the momentum is enormous. According to him, the free trade agreement, which was signed in record time, will further speed up the pace up to a trade volume of 10 billion dollars within five years. He reveals that there is a growing Israeli interest in the real estate sector in the United Arab Emirates, which has brought investments of increasing volumes. The Emirati minister notes the success of the tripartite agreement with Jordan to build a huge solar farm in the Hashemite Kingdom that will produce electricity which Israel will purchase, and in return will sell desalinated water to Jordan. of this agreement will be seen, other countries will want to imitate the success.”
Another aspect opened up by the Abraham agreements is the exposure to huge international companies, which until now were not interested in entering the Israeli market. Such is the large supermarket company Carrefour, with which the relationship was established in the United Arab Emirates.
Another field that flourishes between the countries is tourism. Nearly half a million Israelis have already visited the United Arab Emirates, most of them as tourists. In addition, international travel agents from Europe and the United States have recently started marketing combined packages to Israel and the United Arab Emirates. The tourists are supposed to land in Tel Aviv, and after six days of touring the main sites, they will fly to the United Arab Emirates – and from there they will return to their countries.
The importance of the Saudis is great
However, in order to bring about a real realization of the potential, the leaders are required to bring about further regional agreements. The key to this is in the hands of Saudi Arabia. As first published in Globes, Jerusalem and Riyadh are already warming up business ties. In recent months, the Saudis have been allowing businessmen with Israeli citizenship to come to them, at the invitation of local colleagues.
Already today, several Israeli companies are involved in the establishment of the future city of Niom. At the same time, a huge experimental agricultural project is managed by Israeli agrotech companies. A senior Saudi official told Globes: “We are trying to do everything possible in the absence of official relations between the countries. There is indeed internal opposition, but much more support. The potential of trade and economic cooperation is huge.” He also estimates that if and when the Saudis will fully join the agreements Avraham, this will be the necessary dramatic change. “When?” – “Inshallah soon”.
As with the Emirates, also with Bahrain – expectations were only partially realized
The strength of the political-security relationship between the State of Israel and the Kingdom of Bahrain, which joined the United Arab Emirates in signing the Abraham Accords on the lawn of the White House in Washington, is stronger than its older sister.
The main reason for this is the direct Iranian threat to it due to the Shia majority in its population. According to the estimate of the American Secretary of State, 55%-60% of the population of the kingdom is Shia – while King Hamed belongs to the Sunni minority. This connection leads to repeated attempts by Iran to incite riots, and lead to a rebellion against the government.
Another issue that affects the peace agreement between Israel and Bahrain is Saudi Arabia. Bahrain is a kind of protectorate of the Saudis, an island connected to the regional Sunni power. The policy of the Al-Khalifa family, which leads Bahrain, corresponds to that of the rulers in Riyadh. That is, the signing of the agreement with Israel was not only done by agreement, but by the direction of the Saudi Crown Prince Mohammed bin Salman.
Fifth Fleet Port
The military-security importance of Bahrain is great, since the home port of the US Fifth Fleet is located there. During the visits of Defense Minister Benny Gantz and Prime Minister Yair Lapid to Bahrain, they met publicly with the commanders of the American forces, in what was more than an implicit threat to Iran.
In the economic aspect, Bahrain is a small country with eight and a half million inhabitants. The economic ties with Israel have increased a lot, but they are still relatively small, tens of millions of dollars. Similar to the United Arab Emirates, here too diamonds occupy a considerable share of Israeli exports, while the share of metals and aluminum for construction stands out in imports.
The expectation that Bahrain would serve as a bridge to Saudi Arabia has, in the meantime, only partially been realized. One of the largest aluminum deals was indeed made with a Saudi company that has a branch in Manama, but not beyond that. However, the good news is that this happened because the Saudis opened up to trade relations with Israel.
An interesting deal between the countries was signed in the water sector. The water quality in Bahrain is poor, and in March of last year a deal was signed between Mekorot and the corresponding company in Bahrain to provide planning, consulting and support services for projects to improve water quality, desalination and smart use.