Israel & UAE deal and its implications on the economies of the Middle East

A closer look at the historic agreement between Israel and the UAE

The October 23rd normalization agreement between Israel and the United Arab Emirates made the UAE the 3rd Arab country (after Egypt in 1979 and Jordan in 1994), and the 1st country in the Persian Gulf, to agree to normalized ties with the Jewish state.

The normalization agreement, otherwise known as The Abraham Accords, will encourage the UAE and Israel to open their economies to each other and permit the movement of “goods, services and investment” over their borders.

After the agreement was signed, UAE-based Apex National Investment and Israel’s TeraGroup signed the very first exchange participation of understanding, to direct joint examination and studies that could prompt the creation of COVID-19 testing units.

Last May, the UAE’s Etihad Airways made a historic first-time departure from Abu Dhabi to Tel Aviv. The flight was said to carry humanitarian aid to Palestinians.

With normalized relations between the two nations, both economies are expected to see a significant lift. There may be updates soon on lucrative oil deals, Emirati tourism packages that encourage Israelis to winter vacations in a warmer climate, education exchanges as well as employment opportunities for both Israelis and the Emirates.

The exact plans are expected to unfold over the following few weeks as both countries get ready to open their diplomatic embassies and begin bilateral negotiations.

Beyond the domestic borders, the agreement has critical regional ramifications. Iran, Turkey, and the Palestinians have censured the UAE for normalizing relations with Israel. Turkish President Erdogan took steps to cut discretionary ties with the UAE.

Saudi Arabia hasn’t commented on the agreement and this has caused some analysts to speculate that the silence is an indication that Crown Prince Mohammed Bin Salman upholds the agreement, but is obliged to remain quiet, on the grounds that his father, the king, is against it. On the other hand, Egypt, Oman, and Bahrain have all expressed support.

As indicated by the UAE Minister of Economy, this arrangement will drive financial development for both countries’ economies as well as economies across the Middle East.

Countries in the Middle East are hoping to enhance their energy through sustainable resources, and this will carry colossal implications for clean energy – particularly solar power – across the entire Arabian Peninsula, where access to solar energy can mitigate energy costs, and support the establishment of sustainable economic developments in the area.

The Abraham Accords have opened doors of opportunity for industries from energy, aviation, defence, cybersecurity, and technology, to medical care, food security, financial administration, and tourism. Analysts are expecting to see growth across all those industries.

Equities across the Middle East have strengthened since the agreement. Israel’s TA-35 index, listing the largest 35 companies on the Tel Aviv Stock Exchange has gained as much as 2% so far, while the main indexes in Dubai and Abu Dhabi rose 1.3% and 0.6% respectively.

Royal continues to keep a close watch on investment opportunities across the region. We’re already seeing some of the positive effects of the deal across a range of sectors in Israel and the UAE. The healthcare sector for one is expected to benefit. Signs of that are already developing in deals like the one between APEX National Investment (UAE) and the Tera Group (Israel) which has both countries cooperating on COVID-19 related research and development plans.

We’re also expecting the tourism sector to benefit, especially for the UAE, which is planning to position itself as a warm winter destination for vacationing Israelis. More tourism will also give UAE’s burgeoning hotel industry a boost. The banking and finance industry often considered the engine of economic growth stands to see significant benefits too.

Bank Hapoalim has already signed an MoU with one of Dubai’s largest banks, Emirates NBD.  Finally, technology-based exports are expected to see a significant increase, mainly in the areas of cybersecurity, spearheaded by big Israeli tech companies like Check Point Software and Solaredge technologies.