Trade between Israel and the UAE has long been off-limits. But a historic agreement to normalise relations means hopes are now blossoming that a lucrative new trade corridor in the Middle East is being established. John Basquill examines the potential new opportunities – and the remaining obstacles to overcome – for Israeli and Emirati companies alike.


When Israel and the UAE announced in August 2020 that they had formally agreed to end decades of hostility by normalising political and economic relations, the accord was widely cheered as a leap forward for diplomatic relations in the Middle East.

In a joint statement, Israeli Prime Minister Benjamin Netanyahu and Sheikh Mohammed Bin Zayed, deputy supreme commander of the UAE and crown prince of Abu Dhabi, vowed “to chart a new path that will unlock the great potential in the region”.

That statement – also signed by then-US President Donald Trump, due to the US’ role in brokering the agreement – promised a strategic agenda that would boost co-operation on trade and security.

Visits to the UAE by business and banking delegations would be arranged in order to establish new relationships across a range of sectors, including technology, telecoms, energy, investment and tourism, it added.

The treaty – known as the Abraham Accords Peace Agreement – was formalised in October and swiftly ratified by the governments of Israel and the UAE.

As a result, the UAE became only the third Arab country to reach a formal normalisation agreement with Israel, after Egypt in 1979 and Jordan in 1994. Similar deals have since been reached with Bahrain and, as this publication goes to print, Morocco.

The first signs of new trade relationships have already started to emerge.

In October, a vessel carrying iron, electronic equipment and other cargo from the UAE arrived at the Port of Haifa – the first time containers had been shipped directly between the two countries. The following month, Israeli tourists landed in Dubai following the first ever direct flight from Tel Aviv.

On the financial side, Israel’s two largest banks were quick to establish working relationships with their Emirati counterparts. In September, Emirates NBD – the UAE’s largest bank – signed a memorandum of understanding (MoU) with Bank Leumi, and another with Bank Hapoalim.

Bank Leumi also signed an MoU with First Abu Dhabi Bank and transferred US$180 to each institution in a symbolic act of new-found mutual co-operation. Since then, both Israeli banks have led sizeable delegations to the UAE.


Gateway to the Gulf

The US has traditionally been the largest export market for Israeli companies. According to World Bank data, the US imported US$16.8bn-worth of Israeli goods in 2018, the most recent year for which data is available.

The total value of exports to the next three largest markets – China, Hong Kong and the UK – each stand at between US$4bn and US$5bn.

China and the US also lead the way in terms of imports to Israel, accounting for US$10.5bn and US$10.3bn respectively. Turkey is a distant third, providing goods worth US$6.2bn to Israeli companies.

Direct trade with the UAE is not expected to reach those levels in the foreseeable future, with ministers and government agencies predicting that deals worth around US$500mn per year are likely to be signed by companies in the two markets, as well as Bahrain.

“That is not a lot compared to trade between Israel and the UK or the US,” says Idan Shapira, a director at Bank Leumi, Israel’s oldest and largest bank, which has been leading business delegations to the UAE since the accord was finalised.

Shapira, head of participation and international syndication within Bank Leumi’s real estate division, was also appointed its director of business development for the UAE in November.

“The UAE on its own is not a big market for Israeli companies,” he tells GTR. “However, there is a ‘but’. The UAE is a hub for the rest of the Middle East, both for countries like Saudi Arabia where we don’t have direct relationships, and markets like Egypt and Turkey where we have direct relationships but where it is easier to go through Dubai.

“Further east, there are places like India, Indonesia, Philippines and Malaysia, which are large markets with limited exposure to Israel. Dubai also has strong trading connections with countries in East Africa. Together, this is where many Israeli companies see major business opportunities.”

Those sentiments were echoed by Ami Daniel, co-founder and chief executive of Tel Aviv-based maritime analytics company Windward, and a participant in a business delegation that visited Dubai in November.

“The UAE sees itself as a gateway to the Gulf,” he tells GTR. “Companies across the whole of the Gulf come to do business in Dubai, and so now, Israeli companies can do business with them as well.”

Israel’s vaunted technology sector has been tipped as an early beneficiary of those new-found relationships, and according to Windward’s Daniel, using tech to build on the UAE’s status as a global hub for trade is currently a priority for prospective buyers.

“From the banks we spoke to, to the oil companies, customs agencies, government and ports, it’s all about trade facilitation, so they’re keen on how they can adopt technology to accelerate that,” he says.

“For example, with energy companies, you can see why they would deal with us around sanctions prevention,” he says. Windward’s technology allows companies to track vessel behaviour in order to detect risk of exposure to illicit trade. “But actually, they are also looking at business optimisation, like how to use machine learning to select the best vessels to move their cargoes.”

That said, Daniel points out there is also a use case for compliance-driven technology. The UAE was heavily criticised in a major April 2020 report by the Financial Action Task Force (FATF) – a highly influential standards-setting body – for authorities’ lacklustre efforts in tackling money laundering and “minimal” implementation of sanctions.

That report said the country remains an attractive destination for criminal cash, particularly given its role in gold, diamond and oil trading, yet authorities’ effectiveness in investigating and prosecuting money laundering was marked as “low” – the FATF’s lowest score.

“When it comes to compliance the world is changing, meaning that the bar has been raised on the re-granulations of anti-money laundering standards, financial crime analysis and sanctions implementation,” Daniel says.

“Since Dubai aspires to be best in class, they will need to align with the new high standards of compliance as the rest of the world.”


Building partnerships

For Bank Leumi’s Shapira, the strength of Israel’s technology sector and the anticipated demand from Emirati businesses is not likely to be restricted to direct imports and exports.

“We have learned that companies in the Emirates are looking for the know-how of Israeli companies, rather than just looking to buy products from Israel,” he says. “That will come, of course, but what is more important is they want to form joint ventures with Israeli companies and build something together in the Emirates.”

Shapira says many of the “hot sectors” for such collaborations are around food security, such as agricultural and water technology. Israeli firms have developed a reputation for world-leading agri-tech, such as digital imaging systems that check for signs of pests or disease, and irrigation systems for use in the country’s dry southern regions.

“These are the areas where they are keen to gain new knowledge and build joint ventures to enhance their food security,” he says. There is also an appetite among Emirati firms for leaning on Israel’s expertise in fintech and cybersecurity, Shapira adds.

Boaz Susser, vice-president of insurance broker Trade Credit Solutions, says the company is already braced for interest from sectors Israeli companies “have historically been good at”, including solar energy, agriculture and water treatment.

“Israeli companies have done many transactions in these areas, and along with tech, that is where we expect a lot of the activity will be,” he tells GTR.

However, Susser says joint ventures, or opportunities around project finance, are likely to “take a while to set up”. He says: “Companies in Israel will need time to get used to how companies in the UAE do business, and vice versa. At the start we’re more likely to see direct trade.”

Opportunities around services trade seem to be emerging more quickly. In terms of trade insurance cover, New York-based Evan Freely, a director at insurance broker BPL Global, says the company is “just starting to get calls about what would be available, checking to see how receptive the underwriting market would be to covering UAE risks”.

“The UAE is considered to be a reasonably well-respected market to cover. Technology and renewables look like they’ll be of interest, for example, and I think it’s something we’ll get very specific coverage requests for over the next several months,” he tells GTR.

“The Middle East historically has conflict risk, so that would have to be considered, but the underwriters would be excited about the quality of exporters in Israel. The banks are sophisticated purchasers of cover as well, and already have partnerships with those entities, so that will help.”

There are also opportunities emerging in financial services. Bank Leumi’s Shapira adds that thanks to the peace agreement, the bank can improve its business in some jurisdictions – a situation he describes as an “interesting by-product of the accord”.

For instance, Istanbul-based financial institution DenizBank is a wholly owned subsidiary of Dubai-based Emirates NBD, and so was previously off-limits for the Israeli institution. Now, due to its group-wide high credit rating, Bank Leumi “can issue and accept guarantees more easily in Turkey”.

“This bank also has a branch in Egypt, so we have a new channel with another bank in that market, along with the names that we have historically traded with in Egypt,” Shapira adds. “I believe we will find more by-products like this, and I’m sure we will see growth from new roots we didn’t even think about beforehand.”


Breaking down barriers

For all the optimism around the accord, and the early signs of interest from companies in both markets, there remain hurdles that will need to be overcome before any new opportunities are fully realised.

Bank Leumi’s Shapira says there is “a lot of excitement” around the UAE as a new arena for clients to expand their businesses, but acknowledges it is “all new to us”. “This accord means we are starting from zero and going to 100 very quickly,” he says.

“There are questions around tax, for example. There are tax treaties between Israel and many other countries, but there isn’t one – for the time being – between Israel and the UAE. That makes things more difficult, but we are doing our due diligence now.

“Also, because of the restrictions on travel due to Covid-19, a lot of clients’ long-term programmes and developments had stalled during 2020.”

It will also take time to build up trust between financial institutions in the two respective markets, explains Susser of Trade Credit Solutions.

“Let’s say that you would receive a letter of credit from a UAE bank that is rated AA-. If that rating was given to, say, a German bank, you would happily treat it like any AA- bank.

“But if it was a UAE bank, you would likely still look to confirm that letter of credit with an Israeli bank, and potentially agree to pay a premium for the confirmation – just to be on the safe side. That is the kind of thing that would ease over time, but it will take a while.”

Another logistical barrier is around export licences. Susser says some exporters will need to obtain a licence before selling to companies in the UAE, and if those technologies are deemed sensitive, the licensing process “might not always be that simple”.

Perhaps inevitably, there is a question around whether the treaty will last. Susser points out that in Egypt, when then-President Hosni Mubarak was ousted in 2011, there was concern within Israel that the two countries’ peace agreement could be withdrawn.

“There were similar concerns around the peace agreement with Jordan when the Syrian uprising took place, in case those issues spilled over into Jordan,” he says. “In a political risk environment this is perceived as higher risk.”

For Robert Besseling, executive director of Pangea-Risk – a trade and political risk consultancy specialising in Africa and the Middle East – some of that nervousness could stem from a perception that the deal was forced through under US pressure.

But for Besseling, the underlying reasons for the agreement – including efforts to build up Middle Eastern states’ food security and digital economies – mean the deal affirms a trend that was already happening, and that it is “likely these kinds of agreements would have been made anyway”.

“There’s much talk about the US’ role in all of this, that countries were pushed into it under US pressure while they’re not ready yet. I don’t think that’s the case for the UAE, or Bahrain either,” he tells GTR.

“Many of these countries were already informally dealing with Israel over the past few years even without any formal diplomatic relations or direct flights. I don’t think this deal would have been rolled out with such a red carpet in Washington, DC, with high-profile delegates on the first flights between Israel and the UAE, if the deal could be marginalised or not implemented.”