UAE-Israel Trade and Business Opportunities – The Benefits of the Abraham Accords

On Monday 19 October 2020, it was confirmed that the United Arab Emirates (the “UAE”) had ratified the peace treaty between the UAE and Israel for the establishment of full diplomatic relations and the normalisation of broader relations relating to travel and business and trade dealings between the two countries. The treaty – formally, the Treaty of Peace, Diplomatic Relations and Full Normalization Between the United Arab Emirates and the State of Israel (commonly called the “UAE-Israel Abraham Accord”) – had been signed at an official ceremony at the White House in Washington, D.C., on 15 September 2020. (Click here for the full text of the treaty.)

A Second Middle East Treaty and Other Positive Developments

The ratification of the UAE-Israel Abraham Accord represents the last of a series of landmark events and announcements that have signaled the onset of a new era for diplomatic and commercial relations between the two countries. 

The positive implications are not confined to the UAE and Israel: on the same day that the UAE-Israel Abraham Accord was signed, a second, separate treaty was signed between Israel and Bahrain, which treaty similarly seeks to normalise diplomatic and other relations between Bahrain and Israel. (Click here for the full text of the treaty.) Not only do the two treaties – known collectively as “the Abraham Accords” (so named because of the common features of the Abrahamic religions of Islam, Judaism and Christianity) – mark a significant and fundamental geo-political shift within the Middle East region, but they are also expected to bring many new opportunities for business and trade across a wide range of industries and sectors. 

The hope for many is that the Abraham Accords, over time, will provide the impetus for other Gulf states (and other states imposing a boycott on Israel) to sign similar agreements with Israel, or to at least lift current restrictions, thus allowing travel between those states and Israel and leading to further significant opportunities for trade and business. We have seen movement in this regard already, with a peace agreement between Sudan and Israel being reached on 23 October 2020 (as with the Abraham Accords, an agreement brokered by the U.S. government). Another recent positive development, which involves Saudi Arabia, is the opening of the country’s airspace as of September 2 of this year for direct air travel between the UAE and Israel, which it is understood came following a request made to Saudi Arabia by the UAE. 

Repeal of the UAE’s Israel Boycott Law

A key legal obstacle that stood in the way of the conclusion of a peace treaty between the UAE and Israel was UAE Federal Decree Law No. 15 of 1972 Concerning the Arab League Boycott of Israel (the “Israel Boycott Law”) – the law that had enacted the UAE ban on travel, business and trade dealings with Israel. Breach of the Israel Boycott Law (as with other analogous boycott laws across the Middle East region) carried with it the risk of criminal prosecution and consequent imprisonment and/or fines. However, on 28 August 2020, following announcement of the UAE’s agreement to enter into the UAE-Israel Abraham Accord, H.H Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE, issued Federal Decree Law No. 4 of 2020, abolishing the Israel Boycott Law. 

The Israel Boycott Law had been implemented in response to an unwillingness to recognise Israel’s status as a legitimately existing sovereign country – with the League of Arab States’ position being that recognition could not come until Palestinians had an independent state of their own. Whilst the Palestinians do not yet have their own state, a condition of the UAE-Israel Abraham Accord (and thus, ultimately, a pre-requisite for the repeal by the UAE of the Israel Boycott Law) was the agreement of Israel to bring a halt to its annexation of land in the West Bank. 

The Impact of the Repeal of the Israel Boycott Law and the Enactment of the Abraham Accords

From a geo-political standpoint, the Abraham Accords and the repeal of the Israel Boycott Law mark a significant departure from Israel’s status as an “outsider” in the Middle East region, and demonstrate a clear commitment to further diplomatic and commercial relations. To put into context the significance of the changes brought about by the Abraham Accords, the UAE and Bahrain are, respectively, only the third and fourth Arab States to enter into peace treaties with Israel, following Egypt and Jordan, who entered into such agreements with Israel over 25 years ago. 

From a commercial standpoint, the commitment to cooperate in the economic advancement of the Middle East is widely expected to create numerous and wide-ranging opportunities, with the stated intention under the Abraham Accords being the conclusion of bilateral agreements in several spheres, at the earliest practicable. The UAE-Israel Abraham Accord explicitly references several areas in which the countries intend to cooperate, and for which additional bilateral agreements will be concluded. These areas include, among others: 

• finance and investment,
• civil aviation,
• innovation, trade and economic relations,
• healthcare,
• tourism, culture and sport,
• energy,
• the environment,
• telecommunications,
• agriculture and food security, and
• legal cooperation.

The Bahrain-Israel Abraham Accord contains a similar list, and likewise expresses a desire of the two countries to cooperate and contract to memorialise their cooperation in areas of common interest. 

Notably, the UAE and Israel have already made in-roads in terms of establishing bilateral agreements, having reached a preliminary agreement as early as 15 October 2020 on a treaty for avoiding double taxation – the same day that the UAE-Israel Abraham Accords were signed. The weeks that have followed have seen several other positive developments, including:

• the opening of communication channels between the two countries, thus making telephone calls from the UAE to Israel possible and the accessing of previously restricted Israeli websites now also possible from the UAE;
• the commencement of regular commercial flight schedules between the two countries (the agreement allowing 28 weekly commercial flights between Tel Aviv’s Ben Gurion airport, Dubai and Abu Dhabi);
• steps being taken for the opening of a UAE embassy in Israel;
• a bilateral agreement that will provide incentives and protections to investors who make investments in each other’s countries;
• the announcement that the government-owned Abu Dhabi Investment Office will open its first office outside the UAE in Tel Aviv; and
• the announcement by the UAE, Israel and the U.S. of the establishment of a Jerusalem-based US$3 billion regional development fund – named the Abraham Fund – the purpose of which will be to promote private sector-led investment for “development initiatives to promote regional economic cooperation and prosperity in the Middle East and beyond” and which it is expected “will bolster regional trade, enable strategic infrastructure projects, and increase energy security through the provision of reliable access to electricity.”

The UAE already has a reputation as a well-established business and foreign investor-friendly environment, with a tax regime generally regarded as favourable for small and large investors. It is now anticipated that several Israeli businesses and investors will be looking to the UAE to set-up or expand their operations. Conversely, investors at all levels and other interested parties in the UAE can now also look to Israel for growth and development opportunities. Undoubtedly, Israel and Israeli businesses have well-established knowledge, experience and expertise across a range of areas, which the UAE can now benefit from also, including in areas such as energy (including renewable energy), water, aviation, finance and investment, and telecommunications. The expectation is that we will see a steady stream of cross border joint-ventures between UAE and Israeli companies in the coming period, as they seek to expand and diversify following the removal of trading restrictions embodied by the Abraham Accords. 

In terms of infrastructure and energy, for example, there are clear similarities between the development and the stated goals of the UAE and Israel. Both countries have a relatively diversified energy mix, and both have committed to clean energy in recent years. The UAE’s intention is to increase the proportion of renewable energy for its total energy usage to approximately 44% by 2050. Notable positive steps have been taken with the commissioning last year of its 1.2 GW Noor solar PV independent power producer (“IPP”) plant at Sweihan in the Al Dhafra region of the Emirate of Abu Dhabi (currently the world’s largest solar PV plant), along with its 2 GW Al Dhafra solar PV IPP plant, which is expected to commence commissioning in the second quarter of 2022. Meanwhile, Israel has committed to increase its solar capacity to 15GW by 2030, as part of a US$23.6 billion plan to reduce its reliance on gas and coal to produce electricity, and move away from its position as a net importer of energy. 

It would seem, therefore, that there is certainly scope for synergies between the two countries in the area of energy. This is borne out by the UAE and Israel having followed up the Abraham Accords with several key announcements that reinforce their dedication to improving the energy sector. Specifically, both countries have announced their intention to work collaboratively with financial institutions and the private sector to “enhance international investment in research and development and the rapid adoption of new energy technologies.” The CEO of Masdar – a clean energy development and operating company wholly owned by the Abu Dhabi government – has also signaled its potential investment in renewable projects in Israel. The announcement of the establishment of the Abraham Fund (as referenced above) will likely lead to an increasing level of collaboration on renewable energy, and other energy and infrastructure projects.

Conclusion:

The dedication to enhance economic trade and diplomatic cooperation demonstrated by the Abraham Accords points to the beginning of promising development opportunities for each of Israel, the UAE and Bahrain. With several other announcements having been made, and with several further bilateral agreements already in play and others expected to follow in the coming months, the international market is eagerly awaiting further information on the countries’ combined strategy for developing their relationships both politically and across a whole range of business sectors. Added to this is the hope that these clear positive changes will soon spread further afield across the Middle East region and beyond.

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Hunton Andrews Kurth will continue to monitor further developments in this area, and share our insights and experience as our clients navigate the positive changes to the political and business landscape across the Middle East. Please contact the authors or your usual Hunton Andrews Kurth contact for further information and for any assistance you may need.