In the first full year since Israel signed agreements with four countries normalising diplomatic and trading ties, its goods trade with the United Arab Emirates rocketed past the US$1bn mark. Jacob Atkins reports that while trade with fellow signatories Bahrain, Morocco and Sudan remains modest, officials and bankers are confident that flows with those countries will deepen and are already triggering a broader lift in trade across the Middle East.


September will mark two years since leaders and foreign ministers from Israel, the United Arab Emirates (UAE) and Bahrain stood on the White House lawn in a formal rapprochement that marked a turning point in the history of the Middle East.

The agreements – ratified in a series of documents known as the Abraham Accords and later expanded to include Morocco and Sudan – marked the culmination of a shifting kaleidoscope of interests which slowly unglued the four Muslim-majority nations from their pro-Palestinian stances and into alignment with Israel.

Part of the calculation was Israel’s competitive advantage in fields such as defence, technology and innovative agricultural exports. These sectors are now underpinning the rapid acceleration in trade between Israel and the UAE, by far the biggest economies of the five.

Official data and interviews with those involved suggest that trade between Israel and the UAE is already strong and on an upward trajectory. Trade ties between Israel and the other three states is still negligible, but efforts are underway to boost it.

But perhaps more importantly is that these new diplomatic ties, which come after more than seven decades of varying degrees of hostility toward Israel over its occupation of the West Bank and blockade of Gaza, seem to be withstanding the expected shocks and affording stability to those who want to trade, and the institutions that finance that trade.

Not even a year after the ink had dried on the Abraham Accords, May 2021 rocket strikes from Palestinian militants in Gaza and a massive Israeli aerial response set off a cycle of violence that has become a regular feature of the Levant since the turn of the century. Despite the deaths of approximately 128 Palestinian civilians and 12 in Israel, the fledgling diplomatic ties withstood the war.

In April this year, Israeli police entered Jerusalem’s Al-Aqsa Mosque, one of the holiest sites in Islam. Clashes between Palestinians and Israeli forces in the compound around the mosque – revered by both Muslims and Jews – have typically rallied most Middle Eastern countries against Israel.

The UAE foreign ministry released a statement in response to the violence in which it emphasised “the significance of calming the situation and ceasing any practices that violate the sanctity of the blessed Al-Aqsa Mosque”.

But the statement, which did not explicitly lay blame on Israel, took place in the context of a phone call between the UAE and Israeli foreign ministers that emphasised their broader common interests, only illustrating the intention of both to thrash out difficulties in the context of a stable diplomatic relationship.

Israeli banks financing trade between Israel and the Gulf states were initially wary that the new relationships would not weather such political tests, according to Nissim Ben Eli, the chief executive of the Israel Foreign Trade Risks Insurance Corporation (Ashra), Israel’s export credit agency (ECA).

“Banks were concerned about political risk, because they are new countries for us,” he tells GTR noting that previous attempts at peace unravelled. “Unfortunately, the relationship can be very unstable,” he says. “But now, I don’t think that’s the issue. There is a very strong interest from both sides in making the Accords work.”

Ashra has received four applications to support trade with the UAE since the Accords were signed, Ben Eli says, two of which – in the agriculture sector – were successful. He says the strong financial shape of the Israeli and UAE governments mean Ashra is unlikely to be called upon to support government-to-government trade, a fact that may explain the relatively low number of applications so far, although he predicts requests will multiply.

Russia’s invasion of Ukraine and fears over food security in the Middle East, a region that is highly sensitive to prices of staple commodities due to its reliance on imports, may drive further interest in Israeli expertise in growing food in arid environments like those in the Gulf and North Africa, Ben Eli says.

The agency has not received any formal applications to support trade with Bahrain, Morocco or Sudan but expects to. Participation in export finance deals with the UAE’s ECA, Etihad Credit Insurance, is also in the offing.

Although Israeli banks are growing more confident that the new trade relationships with the Abraham Accords countries will be stable, they are still running into difficulties accessing enough information about UAE companies to carry out credit and financial crime diligence, according to Ben Eli. Israel’s two biggest lenders, Bank Leumi and Bank Hapoalim, did not respond to requests for an interview.

Dorian Barak, head of the UAE-Israel Business Council, says that some Israeli banks are treading carefully because of a general reluctance to accept foreign collateral for lending, and transfers of funds between the two countries are subject to time-consuming compliance checks.

Israel is also on continuous high alert for disguised terrorist financing activity, while the UAE – a global financial hub – was recently added by the Financial Action Task Force, the global financial crime standards-setter, to a list of countries that should be subject to more stringent economic crime due diligence.


Uneven trade

Trade between Israel and the UAE topped US$1.1bn in 2021 the first full year since the Abraham Accords were signed, according to data from Israel’s Central Bureau of Statistics.

Israel imported US$771.5mn-worth of goods from the UAE during the year, a massive jump from the US$114.9mn recorded in 2020. The UAE received US$383.2mn in Israeli imports during the same period. The two countries are the Middle East’s biggest diamond hubs and the gem accounted for US$331.7mn-worth of Israel’s exports to the UAE and just over two thirds of its imports. More granular data on exactly what goods are being traded are not yet available.

For years prior to the Abraham Accords, trade between Israel, the UAE and other Arab countries existed, but was largely routed physically through countries such as Cyprus, Jordan and Turkey, and financially through countries where Israeli firms set up subsidiaries for that purpose, such as Switzerland and the UK.

Israelis with dual citizenship even shuttled back and forth between Dubai and Tel Aviv. These existing ties helped lubricate the trade that is now out in the open.

Interest among UAE businesses in the new trade relationship was almost instant, according to First Abu Dhabi Bank’s (FAB) head of trade finance product innovation Anirudha Panse. “There was a lot of interest from corporates, because they see this as the opening of a new trade country for them, which before the Accords was not available as a country for them to be able to trade with.”

Panse says the trade ties “are still in the nascent stage with a lot of potential to grow across sectors”, but that the bank has “been able to support our clients in the automotive sector, in the food grains trading sector, in the electronics sector, in the aerospace sector. We’ve had a good mix of business coming in between the two countries.”

Panse says FAB does not see trade with Israel as high-risk per se and has been happy to underwrite risks.

In April this year, Israel and the UAE signed a free trade agreement that the governments said will eventually eliminate tariffs on the vast majority of goods traded between the two. Negotiations concluded after only five months.


New hubs

The UAE’s economy minister said last year he wants economic activity with Israel to reach US$1tn by 2031, a tough ask given the figure exceeds the gross domestic product of both countries combined.

More modestly, the UAE-Israel Business Council projects goods trade between the two jurisdictions to jump by around US$1bn each year, reaching US$3bn by 2023. Barak – whose residencies in Israel and the UAE highlight the growing enmeshment between the two economies – notes that those figures don’t take into account large government-to-government contracts in the defence sector or growing tourism flows.

The upward trajectory of trade between Israel and the UAE is in stark contrast to Israel’s trade with the other signatories to the Abraham Accords, however.

Total goods trade between Israel and Bahrain amounted to US$6.5mn last year, after zero was recorded in 2020 and 2019, according to Israeli statistics. While Israeli exports to Morocco more than doubled to US$30.6mn in 2021 compared to the previous year, its imports from Morocco have barely shifted since diplomatic ties were established.

Before 2020, Morocco’s attitude toward Israel was one of the least hostile in the Mena region, and Israeli tourists with Moroccan heritage frequently visited the country.

Sudan is not included in the available statistics, but by all accounts trade is negligible and neither nation has consummated the new relationship with an embassy. Even given Sudan’s much smaller economy compared to the other Abraham Accords countries, it has taken a much more low-key approach to the new relationship and was motivated to recognise Israel mainly for what it got from the US in return: extrication from Washington’s punishing sanctions.

In Bahrain’s case, it is eyeing a return to its former role as a major financial and trading hub in the Gulf, taking back some of the business it has long-since lost to Dubai.

“Historically Bahrain was a hub for trade from the east to west and west to east,” says Israel’s first ambassador to Bahrain, Eitan Na’eh, who arrived last November. “We are not opening new trade routes, we are reopening trade routes going back to Biblical times,” he says.

More immediately, Na’eh tells GTR that Bahrain is an attractive choice for Israeli companies seeking a trading hub in the Middle East, noting that Israeli visitors to the island of 1.7 million people have been surprised by the ease of setting up a company and navigating associated regulations.

The economic relationship is “picking up”, says Na’eh, who was also Israel’s first top diplomat in the UAE, and a former ambassador to Turkey. “The potential is here, it has already been identified by some Israeli companies.” But there are currently no moves to create a free trade agreement, he says.

Na’eh predicts that Bahrain will see Israeli companies set up research and development facilities and factories, along with cross-border trade and investments in the fintech, pharmaceutical and agriculture sectors.

The diplomat sees less demand in Israel for Bahraini exports, although there is strong interest among Israeli importers for Bahraini aluminium.

Barak also sees a similar role for Dubai, which has the advantage of being a global financial centre. He suggests Israeli companies trading in Asia will find a breezier and more cost-effective home for their operations in the UAE, compared to more expensive jurisdictions such as Singapore and Hong Kong, where strict coronavirus-related curbs have taken their toll.

He also says Dubai is well-situated as a base for Israeli companies wanting to trade with major Middle Eastern economies that are still officially hostile to Israel, for example Saudi Arabia and Iraq.

Almost everyone who spoke with GTR expects the Abraham Accords, although currently limited to four countries, to fuel trade across the Mena region by bringing Israeli goods into the fold and diminishing the reverse-halo effect of doing business with a country that many in the Arab world harbour a deep resentment towards.

Barak forecasts trade with Saudi Arabia, for example, to grow in 2022, a relationship Bahrain is well-placed to help foster with its deep links to the Saudi government and economy. Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman, is widely seen as wanting to normalise ties with Israel but faces resistance from his father, King Salman bin Abdulaziz Al Saud.

The view that the Accords have lifted Israeli-Arab trade more broadly is supported by the 2021 trade figures with Jordan, which show that Jordan’s exports to Israel almost doubled to US$391mn. Total trade between Egypt and Israel in 2021 was US$246.1mn, up from US$179.9mn the previous year.

Israel signed a peace treaty with Jordan in 1994, following a similar accord with Egypt in 1979, but it has long been a cold peace through which trade took place discreetly. Time will tell whether the uptick in trade is a sustained one.

What is certain is that some of the fault lines which have divided the Middle East for decades are eroding, and trade looks set to benefit. Ashra’s Ben Eli recalls his first visit to the UAE in 2021, a flight of just over three hours and through Saudi airspace, which was long shuttered to flights that even passed over Israel. “Who can imagine it two years ago, or even less than two years ago? It’s really amazing.”

If the rapid pace of diplomatic shifts seen since 2020 continues, the trade dividends may only be just beginning.