Tuesday

4th Oct 2022

Opinion

Oil, carbon reductions and future EU-Gulf relations

  • To date there is no Free Trade Agreement between the EU and the Gulf Cooperation Council. Because of this, relations have generally been bi-lateral -between countries - rather than multilateral (Photo: ezioman)

July marked the start of a new direction for the European Union, with Germany's Ursula von der Leyen as Commission president and Belgium's Charles Michel as president of the European Council have been charged with forging the bloc's new economic, political and diplomatic direction

In the former's case she set out a policy portfolio which acknowledged the diverse nature of the European Parliament.

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Given the increased number of Green MEPs, she promised to reduce carbon emissions across the continent and proposed a transition fund to help countries meet those goals.

For her conservative MEP base and those from the more nationalist right, she pledged to rewrite the EU's migration and asylum rules.

These two areas may well have implications for the EU and its foreign policy, especially with extra-regional partners in the Middle East and more specifically the Gulf.

Money over politics?

In general, the EU's relationship with the Arab Gulf region has tended to be more commercial and less political.

Moreover, it is a relationship where the EU's influence has been relatively modest and limited in scope.

In part this reflects its relatively weaker economic situation after the global financial crisis in 2008-09. But it is also due to the uprisings which swept the Middle East after 2011.

It has largely reacted to events, rather than shape them, exemplified by the Mediterranean migrant crisis.

Despite the EU's reactive stance, the issues of migration and asylum have provided space for engagement with the Gulf.

Over a decade ago Dubai's Sheikh Mohammed established a humanitarian zone in the city, which has served as a hub for international organisations and companies to base themselves and carry out logistics for humanitarian assistance. The EU has been a visible presence in the sector. This highlights the established, positive working relationship between Brussels and Dubai on humanitarian concerns.

Beyond the EU's interaction with the Gulf in the humanitarian sector, trade in goods and services dominates the relationship between the EU and the Gulf Cooperation Council (GCC) states.

Between 2008 and 2018 EU imports from the GCC rose by more than 50 percent, mostly in the form of oil. If the von der Leyen proposals to reduce carbon emissions go through, this may pose a challenge to the relationship. But set against that are forms of trade that are becoming more diverse.

During the 2008-18 period EU exports of goods increased from €70m to €91.3m, the bulk of which were associated with power generation plants, railway locomotives, aircraft and electrical machinery.

The result is that the EU is the GCC's largest trading partner with 14.6 percent of its trade. Trade in services between the two has also increased, from €36.5bn in 2010 to €47.8bn in 2018.

Of this, EU service exports are double those from the GCC.

Brexit breach

Economic exchange has not been all in one direction, however. GCC states have long been an important source of investment in Europe, especially in the UK.

Because of Britain's role as the leading recipient of GCC investment, its departure from the EU will remove an important facet of the relationship between the two groupings.

To date there is no Free Trade Agreement (FTA) between the EU and the GCC. Because of this, relations have generally been bi-lateral—between countries—rather than multilateral.

Individual European governments will face common concerns from their national businesses wanting to invest in the Gulf.

According to recent EU reports, they face a number of challenges, from fears over the ability to collect payments and repatriate capital, the regulatory and permit framework, the effectiveness of the government bureaucracy and the availability of skilled labour.

However, there has been a clear willingness on the part of GCC governments to address these issues. This will lead to further commercial opportunities beyond previous ones.

After oil prices fell, from 2014 various GCC countries proposed reforms to invest their hydrocarbon-generated wealth and diversify their local economies, to insulate themselves for the future.

This has necessitated the development of local industry and infrastructure, presenting EU firms opportunities in the form of public-private partnerships.

In addition, some governments like the UAE's have also proposed to loosen controls over foreign ownership outside its free zones and extend visas for longer. The Emirates has been at the forefront of this movement, with non-oil private sector growth recently reaching a five-year high.

As the next European cycle begins later this year under the new regime, the structural arrangements surrounding the EU-GCC relationship will look much as they have done.

However, the EU should seek to improve its limited diplomatic standing in the region, leveraging the already considerable commercial ties its private sector enjoys.

Author bio

Guy Burton teaches at Vesalius College in Brussels and is a visiting fellow with the LSE Middle East Centre in London. Until last year, he was an assistant professor at the Mohammed Bin Rashid School of Government, teaching UAE and Gulf issues.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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