The ongoing conflict in Gaza has significantly cooled the once-celebrated business ties between Israel and the United Arab Emirates (UAE). The once-thriving economic partnership, forged in the aftermath of the Abraham Accords in 2020, has retreated from public scrutiny, with Israeli entrepreneurs and executives declining to discuss recent deals. .
The UAE, the most prominent Arab state to establish formal ties with Israel under the Abraham Accords, has maintained its relationship throughout the more than six-month-long conflict. Israeli entrepreneurs had flocked to the Gulf state, establishing new business ties and expanding existing relationships. Pre-war deals included investments in cyber security, fintech, energy, and agri-tech. However, in the wake of the conflict, Israeli officials, executives and entrepreneurs have declined to discuss any recent deals acknowledging a decrease in public visibility.
The UAE is the only Arab state still hosting an Israeli ambassador, with Israeli diplomats recalled from other Arab states following the October 7 attack by Hamas that prompted Israel's invasion of Gaza. Since establishing formal diplomatic ties in 2020, Israel and the UAE have built a close economic partnership, unlike the decades-long peace deals with Egypt and Jordan that have failed to establish significant business relations. Trade between the two countries grew 17% to reach $2.95 billion in 2022, according to data from the Israel Central Bureau of Statistics. Despite a cooling in the wake of the war, trade remained 7% higher year-on-year in the first quarter of 2024.
Close ties forged in the immediate period after normalization have helped sustain the business relationship with the UAE. Israeli executives at UAE-IL Zone, a non-government Israeli-based platform that aims to develop UAE-Israel business links, reported that Emirati officials had assured them that investments into Israel would not be stopped over the war. Raphael Nagel, a German Jewish entrepreneur living in the UAE and head of a private business group promoting business ties between Israel and the Gulf Arab state, described the situation as "It's still happening. It's happening less; it's less in your face". Bankers and lawyers in the UAE also reported that business ties between Israeli and Emirati companies had endured the war but that few new deals were happening.
The UAE government, wary of promoting relations with Israel, has been cautious in its approach. In Israel, many businesses have been affected by staff being called up for military service. Several Israelis who were already doing business in the UAE before the war reported that their personal and commercial relationships with Emiratis and other Arabs in the UAE remain unaffected. However, there is a demand on both sides not to disclose business ties publicly. Elie Wurtman, co-founder of Israeli venture capital firm PICO Venture Partners, described the situation as "chilling but business as usual."
Robert Mogielnicki, a scholar at the Arab Gulf States Institute in Washington, noted that the war in Gaza was a "big disincentive" for the UAE to undertake major new economic initiatives. He pointed out that there was growing anger and concern over the war among UAE citizens, a minority of about 1 million people in the Gulf state whose population totals around 10 million. UAE officials have maintained that forging ties with Israel was a strategic decision that they did not intend to reverse. However, some officials have expressed frustration at Israel over its prosecution of the war and the high civilian death toll.
The Gaza war has significant economic implications not only for the involved parties but also for the global economy. The economic toll of the war may cost Israel an estimated $400 billion in lost economic activity over the next decade – threatens Israel's economic future. For Israel, 90% of the economic shock will come from indirect effects: reduced investment, slowing productivity growth and labor market disruption. Due to Israel suspending Palestinian work permits, it recruited workers from India and Sri Lanka to fill the gaps. In the final quarter of 2023, the Israeli economy shrank by 20% caused due to labor shortages in construction and from the mobilization of 300,000 reservists. While Israel did still see economic growth of 2%, this was down from 6.5% growth in the year before the war. Further consequences of the war were that consumer spending declined 27%, imports declined by 42% and exports were reported to decline by 18%. Israel's economy experienced a more significant decline than anticipated by market analysts, signifying the largest contraction in nearly four years, as reported by Israel's Central Bureau of Statistics' initial assessment.
The economic impact of the Gaza war has also been felt in the UAE. The country's economy, which was already facing challenges, has been further strained by the war. The UAE's economy is heavily reliant on oil exports, which have been affected by the conflict. The country's foreign exchange reserves have also been depleted due to the war, making it difficult for businesses to access capital. The UAE's central bank has revised its growth forecast for 2024 from 3% to 2% and anticipates that GDP recovery to pre-war levels will take over a year.
As a matter of fact, the Gaza war has significantly cooled Israel's once red-hot business ties with the UAE. The strategic relationship between the two countries has been put under scrutiny with both sides exercising caution in their dealings. The economic implications of the war have been far-reaching affecting not only the involved parties but also the global economy. As the conflict continues, it remains to be seen whether the business ties between Israel and the UAE will recover or if the war will have a lasting impact on the relationship.
