Rest meets West: How the UAE keeps its economic ties open

Having become a BRICS+ member in January, the United Arab Emirates is eager to consolidate its position as an important – and non-aligned – geoeconomic player. Increasingly, the country is aiming to strike a careful balance between its key trade and investment partners in the West and pursuing new opportunities presented by the BRICS+ economies. In many ways, its multipolar approach is working. Dubai, has seen super-charged growth in recent years – despite the economic shocks of post-pandemic protectionism, the Russian invasion of Ukraine, and escalating US-China tensions – largely due to this ability to remain a safe haven for globalisation. Ultimately the UAE’s bet is that great powers, even amid growing competition and rising tensions, will still need space to do business, even if indirectly, with one another. In positioning itself as an economic connector between East and West, the UAE is seeking to balancing its ties with all sides to maximise its own gains – and make itself a valuable strategic player to Europeans, and the rest of the word.

Moreover, the UAE, traditionally a regional trailblazer, has for years served as an inspiration for the Saudi leadership in all different domains. Because of this, watching how the Emiratis explore their BRICS+ membership could provide Europeans with key insights into how Saudi Arabia will approach their own participation to the BRICS+ once they officialise their participation, already de facto active.

The geography of Emirati geoeconomics

As part of its multipolar geoeconomic strategy, the UAE is eager to capitalise on its strategic location between Asia, Africa, and Europe. The Emirates are keen be first movers in the developing economies of Africa and south-east Asia which are not easy to penetrate. Africa in particular receives special attention from the UAE for its potential in critical minerals and the energy industry. The UAE is already the second largest bilateral investor in the continent – alongside the US and behind only China – and plans to become a major stepping stone for international investors seeking to operate on the continent but with safer jurisdictions. The UAE instead views engagement in south-east Asia as a useful way to navigate the US-China rivalry. To escape its economic impact, many businesses are expected to relocate to the region, where the UAE has signed a number of trade liberalisation agreements, or Comprehensive Economic Partnership Agreements (CEPA) in anticipation.

However, India is the most attractive of the UAE’s geoeconomic partners. Despite challenges stemming from India’s protectionism, cooperation is close on key areas, especially food security, technology, and connectivity. For the UAE, the new India-Middle East-Europe economic corridor (IMEC) will be crucial to deepen this connectivity. At the same time, however, the Emirates are staying close to their policy of multi-alignment: because China is the UAE’s largest trading partner, the Emiratis are careful to reject the idea that IMEC should be an alternative to China’s Belt and Road Initiative or a way to cut back trade with China.

In a similar vain, despite Israel’s war in Gaza, the UAE remains interested in strengthening connectivity to Israel. In particular, it is cooperating with Tel Aviv to get around the bottlenecks on maritime trade caused by Red Sea tensions: in December Israeli and Emirati companies signed deals to facilitate an overland trade route from the UAE – through Saudi Arabia and Jordan – to the Israeli port of Haifa.

The UAE’s move away from the dollar, sanctions, and export controls

The UAE and other Gulf monarchies do not share European and US concerns about the vulnerabilities of economic dependence on China and ties to Russia or Iran. Instead, they compromise with Western powers on key red lines but reject any maximalist demand that would amount to choosing a side. This is the fundamental thinking informing the UAE’s vehement opposition to sanctions as a tool of foreign policy, its resistance to complying with export controls, and eagerness to embrace a currency multipolarity. It is also why the UAE sees a more liberal approach to exchanges as a necessary step towards becoming a global trade hub.

As such, the UAE’s modus operandi on sanctions and export controls’ implementation is one of under-compliance: whenever there is a grey area, the UAE pushes ahead until it is stopped by the US and a line is drawn, to which it will sit just behind. This is what happened when the UAE provided a licence to Russian MTS Bank to operate, only to revoke it a month after the bank was placed under US sanctions. There is still no intention to cut off Russian-related business completely.[1] Despite this, the UAE has shown greater willingness to comply with Western red lines on Russia since the second half of 2023, partly because they exhausted all avenues of available Russian capital and trans-shipment opportunities, and partly because the UAE is anxious to get off the Financial Action Task Force (FAFT) grey list, where it was placed in June 2022. For instance, the UAE recently pledged to curb some of the direct re-export to Russia of dual-use technology products included on the G7’s List of High-Priority Items.

Yet the UAE remains willing to defy Western pressure on export controls on China. For the Emiratis, China’s attractiveness is in granting quasi-limitless access to research and development that is essential to building the technological edge that the UAE regards as a key source of future power. For example, prominent Emirati company G42, who worked with Chinese firms like Huawei and BGI Genomics, was recently accused of being a conduit by which advanced American technology is siphoned to China.

Shaping a world where currency multipolarity thrives, and limiting the United States’ currency reach, is seen in the UAE as the best insurance policy against Western pressures on China and Russia. Notwithstanding the UAE mostly investing in the West, accumulating financial surplus in US dollars, and pegging the Emirati dirham to the dollar, the country is at the forefront of experimenting with the de-dollarisation of cross-border trade. One such project is a financial technology protocol named mBridge, which bypasses US dollars by establishing a blockchain platform for real-time settlements using China’s central bank digital currencies. Founded by the Hong Kong Monetary Authority, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People’s Bank of China, and the Bank of Thailand, the project is also attracting interest from other BRICS+ countries. Alongside this, the UAE has multiple long-term currency swap agreements in place, including with China and India, as well as deals to settle trade and capital transactions in the signatories’ respective currencies. Ultimately, the BRICS’s New Development Bank could offer ways to give financing to US sanctioned countries, like Iran, bypassing Western financial hydraulics.

The risks and opportunities for Europeans

In this multifaceted context, Europeans should explore the opportunities offered by the UAE’s eagerness to serve as an economic connector between East and West, while factoring in specific risks on sensitive domains. The UAE’s current priority with the EU is to sign a CEPA, as it would grant the Emiratis a boost to its re-exports. As technical talks continue on the CEPA trade deal, the EU should be very clear on red lines related to trade limitations and investment screening on items covered by its economic security strategy, such as critical technologies vis-à-vis China. Europeans should communicate to their Emirati counterparts that access to sensitive high-tech projects will be denied if the UAE gives Moscow and Beijing a backdoor to Western technology. The process towards a FAFT de-listing, due this year, offers an opportunity for the EU to urge for more anti-money laundering compliance regarding Russia. Finally, Europeans should de-risk from the growing Saudi-UAE rivalry, as Riyadh and Abu Dhabi compete for regional geoeconomic leadership. A more inclusive approach to IMEC – for instance, inviting Oman to join – would be a way to diversify away from exclusive reliance on UAE or Saudi ports. Critically, the EU should be mindful of UAE-Saudi trade tensions in its approach and sequencing during such trade talks.

[1] Author’s interview with UAE officials, off-the-record, Dubai, 11 November 2023.