MID-EAST REGIONAL RIVALRIES : FROM THREE-WAY COLD WAR TO REGULATORY ARMS RACE?
‘Eastern Winds’ missiles rained down on the Bushehr nuclear power plant and the Pasdaran’s Badr airbase, as RSAF Tornados pulverised the Iranian airforce before it had even had the time to scramble. Abrams tanks rolled off Saudi landing craft and thundered north to Tehran in their hundreds. Elated crowds thronged the streets of the Iranian capital to greet their liberators, brandishing Saudi flags and portraits of Crown Prince Muhammad Bin Salman (MBS).
It was only a video, of course, signed (in the interests of plausible deniability) by a shadowy group calling itself ‘Saudi Strike Force’. But its clunky CGI did give graphic shape to MBS’ publicly stated pledge to “bring the fight to Iran”, and its release in December 2017 marked the high-water mark of the inter-bloc rivalry that characterised most of the decade following the Arab Spring.
As the revolutionary wave that began in Tunisia in 2011 peaked and then crashed, three regional blocs – one comprising Qatar, Turkey and the Muslim Brotherhood, another Saudi Arabia, Bahrain, the United Arab Emirates and Egypt (the so-called Arab Quartet), and a third Iran, Syria, Iraq, Hezbollah, and Yemen’s Houthi rebels – coalesced, locked in an increasingly bitter cold war. Blockaded by its Arab Gulf neighbours, Qatar faced an ultimatum that stopped just short of full-on regime change. Proxy wars raged in Yemen and Libya. The leading antagonists scrambled to establish extraterritorial military bases: Turkey in Doha, Mogadishu and Suakin (Sudan); Saudi Arabia in Djibouti; the UAE in Berbera (Somaliland), Assab (Eritrea) and on the Yemeni island of Socotra.
Those trends are rapidly disappearing into the past. One key turning point seems to have come when it became clear to the rulers of Saudi Arabia and the UAE that it was not after all going be possible to leverage their influence over Donald Trump to deliver knock-out blows to Doha and Tehran, after which the ties that bound the Arab Quartet together began to fall away. By January of this year, Qatar was welcomed back in from the cold by MBS at the GCC’s Al-‘Ula summit, and since then things have been moving fast on all fronts.
Today’s dominant trend, clearly, is towards reconciliation and rapprochement between former antagonists – with immediate consequences for the regional business environment.
The rehabilitation of Qatar has put an end to an unseemly battle over beIN’s sports broadcasting rights and removed the sword of Damocles that for a time hung over the head of the Dolphin gas project with the UAE. Prodded by Turkey’s business class, hard-hit by his eccentric monetary policies, President Erdogan has begun mending fences with Egypt, Saudi Arabia and UAE; Abu Dhabi’s Crown Prince Muhammad Bin Zayed was welcomed to Ankara in November amid talk of plans for new ‘strategic’ bilateral investments that could, for example, see Abu Dhabi acquiring a stake in Turkish military drone manufacturer Baykar. A fragile peace has been brokered in Libya, while the UAE has started the ball rolling towards Arab Gulf normalisation with Assad’s Syria, potentially opening up the (not unproblematic) perspective of vast reconstruction programmes in those countries. Even Saudi Arabia and Iran have begun talking about restoring diplomatic relations.
There are limits to all this, of course. While the other two blocs may be fading into the past, the axis centred on Tehran – arguably the only one that was of truly existential importance for most of its members – is largely holding together (only Baghdad appears wobbly, for a range of reasons). And rather than some Pauline conversion to peaceful coexistence, the limited attempts by Riyadh and Abu Dhabi to engage with Tehran signal, as Diwan’s ever-perceptive Michael Young has observed, an entirely pragmatic “effort by Arab states to use openings toward Syria and Lebanon to challenge Iran’s sway in both countries and turn them into places where the Arabs can bargain with Tehran”.
The overall trend, nonetheless, is still towards detente between former rivals. Perhaps more interesting than this, however, is a parallel trend towards new rivalries between erstwhile allies.
Let us look in particular at Saudi Arabia and the UAE, who been locking horns increasingly openly as they race to shore up their soft power and to future-proof their heavily hydrocarbons-focussed economies against the energy transition. Much of the competition between them has been on the legal and regulatory plane.
MBS has been especially brazen, issuing a shock ultimatum in February of this year to foreign companies to move their regional headquarters to Saudi Arabia by 2024 or face being excluded from Saudi government contracts – a move clearly aimed at undermining Dubai’s dominant position as a regional base for multinational firms. More insidiously, Riyadh has reportedly also exploited the opportunity presented by the Covid-19 pandemic to strike a blow against Dubai’s position, invoking health restrictions to clamp down on the common practice of foreign firms’ expatriate staff conducting their business in Saudi Arabia Sundays to Thursdays only while maintaining their home base in the far more congenial Dubai.
Saudi Arabia has also announced a ten-year tax holiday and a raft of other incentives for foreign firms that set up shop in Riyadh’s mammoth, but so far empty, King Abdullah Financial District (KAFD) – a direct rival to the Dubai International Financial Centre (DIFC). Even more ambitiously, at the beginning of the summer the Saudi government unveiled a very wide-ranging National Strategy for Transport and Logistics Services, with the explicit aim of turning the Kingdom into a major regional air transport and logistics hub – another direct challenge to Dubai’s traditional dominance.
In these and other fields, Dubai and Abu Dhabi do of course enjoy a real first-mover advantage – and are actively defending it by making modifications to the legal, regulatory and social framework so as to enhance the UAE’s attractiveness for foreign companies and their expatriate employees.
The Emirati authorities scored an early goal with a series of reforms announced in November 2020 aimed chiefly at making life easier for expatriates: decriminalising the consumption of alcohol, allowing unmarried couples to cohabit, recognising the legislation of expatriates’ countries of origin in matters of inheritance, divorce, etc. This was followed in September of this year with a new reform of the rules governing visas and residence permits, specifically designed to attract and retain creatives and other highly qualified foreign workers.
This year the UAE has also made important changes to the Commercial Companies Law, allowing foreign nationals to own 100% of shares in onshore Emirati companies for the first time, abolishing the requirement for local branches of foreign firms to work with a local service agent, and making it easier to launch IPOs in-country. In another significant development, in mid-September Dubai announced an ambitious overhaul of its ADR institutions, folding the offshore DIFC Arbitration Institute and the Emirates Maritime Arbitration Centre into the Dubai International Arbitration Centre (DIAC), fully restructured and relaunched for the occasion. The explicit intention is to make Dubai the undisputed regional centre for commercial arbitration.
The UAE’s legal system has been aptly described as an “archipelago”: an ocean of sharia-influenced civil law (as enshrined in the UAE’s Civil Code) dotted with islets of business-friendly English common law (the DIFC and Abu Dhabi Global Market Courts). The latest reforms if anything reinforce the place of English common law, insofar as they make the DIFC Courts the default jurisdiction overseeing the newly consolidated DIAC.
Saudi Arabia now seems poised to adopt a somewhat similar “archipelago” model: MBS has pledged that NEOM, his flagship mega-development in the north-west of the country, is to have its own autonomous legal system; the logical next step will be to grant special status to the KAFD itself, at least in terms of commercial law; and in furtherance of the Crown Prince’s aim of developing international tourism it has been suggested that special legislation authorising alcohol and gambling may soon be applied in specific areas.
But the UAE’s rulers are always keen to keep one step ahead. And indeed there are indications – not yet concrete plans, but it would seem more than mere rumours – that the UAE might be contemplating root-and-branch reform of its legal system, sweeping away the archipelago in favour of a more easily navigable, unified model (some say based on common law, others civil law).
Could Saudi Arabia possibly match that? There has been much talk – dating back to the reign of the late King Abdullah – of the need to codify Saudi Arabia’s entirely sharia-based law, in the interests of clarity and predictability, especially for business. But introducing even limited change in this direction has so far proved difficult, and painfully slow. In early February of this year, MBS announced the imminent adoption of four new laws – a Personal Status Law, a Civil Transactions Law, a Penal Code for Discretionary Sanctions and a Law of Evidence – that were touted as a major step towards the codification of law in Saudi Arabia. As the year draws to a close, none have seen the light of day…
Will 2022 see unprecedented transformations in Saudi Arabia’s legal environment? Will the UAE maintain its competitive edge by introducing even bolder business-friendly reforms?
One thing is certain: the legal and regulatory cold war is far from over.