Gulf Airlines, The Art of Copy-And-Pilfer

Obliged by the energy transition to diversify, the Gulf monarchies want to secure a future or themselves when the black gold has run out. However their rivalries are intensifying on various economic fronts, especially air transport, where Saudi Arabia intends to outdo Qatar and the Emirates.

Dubai International Airport
Jnanaranjan sahu/Wikimedia Commons

At the crossroads of the airways connecting Asia, Africa and Europe, the Emirates fleet of Airbus A380s and Qatar Airways’ Boeing 777s reign supreme while on the ground, Dubai International Airport boasts, for the seventh year running, the title of world’s airport hub most frequented by international passengers. Despite the Covid-19 pandemic which has brought to its knees a sector known for its slim margins, the Gulf carriers can count on the support of ambitious reigning families that regard every aircraft flying the Emirati or Qatari flag as a source of pride and soft power: “Successful airlines have made them visible internationally, have made the names of these little countries household words”, says aviation analyst Alex Macheras.

Anxious for his name to go down in modern Arab history and to redress the image of Saudi Arabia as an ultra-conservative kingdom, guardian of Islam’s holy sites and supplier of cheap fossil energy, Mohamed Bin Salman (MBS) appears to be banking on a head-on confrontation with Dubai and its worldwide reputation as a business hub, envied by all its neighbours.

The crown prince has announced an investment of 550 billion riyals (143 billion dollars) in transport and logistics, as well as the creation of a second Saudi airline. His first objective is to tackle the transit market and the Qatari and Emirati domination of the Gulf airways. A network of 250 destinations will be meant to propel the carrier into the role of standard-bearer for a Saudi Arabia anxious to assert its status as number one economy in the Arab world.

However, such audacity has been quick to trigger an angry reaction from competitors already be mired in the defence of their market shares in the face of a plummeting demand for international travel: down 81% between May 2019 and May 2021 for the Middle East. “Airport hubs like Dubai are starving and need to be fed,” Robert Kokonis exclaims. He is chairman of an international airline consultancy based in Canada, Air Trav. And Alex Macheras adds that “it’s just too late, they’ve missed the boat […] There is no need for another airline to do what Qatar Airways and Emirates have already achieved.”

“Siphon off business from the United Arab Emirates”

Meticulously constructed around the income from exporting crude oil and natural gas to Western and emerging Asian countries, the Gulf economies have now set their sights on strategies of sectorial diversification. The similarity of these has implanted throughout the region a spirit of ferocious economic rivalry in total contradiction with the principles inscribed in the Charter of the Gulf Cooperation Council (GCC). A bitter economic competition which is not confined to sectors perceived as prestigious, such as air transport, but affects all aspects of the economy.

The prospects of three-digit growth over the decades to come on the hydrogen and renewable-energy markets excite the greed of the Gulf’s two economic giants, Saudi Arabia which means to make ACWA Power its flagship on the carbon-free energy market, has announced the construction of the world’s largest hydrogen plant in the futuristic city of Neom. On the other side of the border, Abu Dhabi has dreams of becoming one of the world’s largest and cheapest producers of blue hydrogen while at the same time making its developer of renewable energies, Emirati Masdar, a world champion.

“Every dollar we can steal from our neighbours is one more dollar for us” seems to be the prevalent attitude in the Persian Gulf. This is the way Frédéric Schneider, Cambridge economist and research fellow sums the situation up. Yet there is nothing new about the phenomenon. During the first decade of the new century, it was Dubai and its International Financial Centre (DIFC) that had the upper hand in the Persian Gulf region, having got the edge over its Bahraini neighbour, which dropped into second place.

In February, Riyadh announced that any foreign concern that refused to situate its regional headquarters in Saudi Arabia after 2023 would no longer benefit from the contracts that have long been granted to the transnational firms operating their Gulf portfolios out of Dubai. “This idea of imposing its economic hegemony is simply very harmful,” Frédéric Schneider observes. In July 2021 there came another “coup d’éclat.” At a time when a quarrel was pitting the UAE against Saudi Arabia over OPEP oil production quotas, the Kingdom announced an end to the preferential customs tariffs hitherto granted firms based in the GCC region. This affects goods manufactured in a free-trade zone or containing components originating in Israel, two references which, according to specialists, are aimed at the UAE. Indeed free-trade zones are a motor of the Emirates’ economy and its normalisation of pre-existing relations with the Hebrew State has opened the door to bilateral trade estimated at 712 million dollars between the beginning of 2020 and the middle of 2021.

“I believe there is no doubt that Saudi plans for diversification will siphon off business from the United Arab Emirates,” is the observation of Najah Al-Otaibi, a Saudi political analyst based in London. He observes the impatience with which some transnational companies intend to reassert their presence in Saudi Arabia, even if it means relocating their personnel. At the behest of MBS, Ryadh intends to make sure that the economic players operating in Saudi Arabia situate their value chains within the Kingdom. A decision which is far from eliciting the enthusiasm of a cadre based in Dubai and interviewed anonymously by the Financial Times: “I’ll give you three letters that spell our chances of moving to Ryadh: N. F. W.” (No freaking way). After decades of advocating an ultraconservative and puritanical version of Islam, Saudi Arabia, under the rule of MBS, wants to project an image of openness. But despite bringing the religious police to heel and granting women the right to drive a car—the last country in the world to let them take the wheel—the way of life in the urban centres of the Kingdom can scarcely be compared with Dubai’s liberal cosmopolitanism.

The quest for synergies

According to Cinzia Banco, a researcher with the European Council on Foreign Relations (ECFR) the challenge which the Gulf economies have to face is their lack of complementarity: “The GCC countries are all dealing with the same challenges and competing for the same resources, since they all have the same strategies to overcome these challenges.”

Economists and analysts all deplore this “cut-and-paste” logic and recommend the creation of distinctive poles of specialisation in order to take advantage of the specificities of each of the Gulf nations and limit the risk of unhealthy competition over a few highly prized economic sectors. While the Sultanate of Oman has succeeded in building a prosperous economy centred around fishing and farming—sectors which, however, contribute only 2.5% to the country’s GNP—and around natural products like incense resin, the Bahrain FinTech Bay is working to develop its industry of financial technology. As for Saudi Arabia, it is urging the motion picture industry to shoot its films in the many unexploited landscapes of a country which has kept to itself for so long. However, despite the very real opportunities afforded, these emerging sectors remain marginal in countries still hooked on the billions of dollars earned each year by their black gold.

Only Dubai has managed to establish itself as one of the vital links of globalisation, in terms of harbour facilities and logistics. The Emirati company DP World operates over 60 terminals on six continents, which makes the firm one of the world leaders in the sector. Its flagship terminal is at Jebel Ali, just outside of Dubai.

In addition to the opportunities provided by the emergence of poles of specialisation, the development of cross-border synergies also has the advantage of encouraging collaboration on projects that help develop an economic identity for the Gulf other than as a purveyor of fossil fuels. In this regard, the tourist trade is uniquely positioned to stimulate a cooperative approach. The promotion of regional tours makes it possible to exploit the “multi-faceted” dimension offered by touristic experiences in the Gulf: visiting Islam’s chief holy sites in Saudi Arabia, attending major international sporting events in Qatar, enjoying the nightlife in Dubai, the UAE’s megalopolis, and exploring the underwater world off the coast of Oman.

Might makes right

When it comes to research and development, cooperation between the Gulf monarchies is “logical” says Bahraini economist Omar Al-Ubatdli. “The European Union has shown how economic integration can amplify the production of R&D by way of the Erasmus program. It would be very useful for GCC countries to take their cue from that example.” But such a project is not on the agenda, hampered by a GCC that has proven unable to federate the oil monarchies with projects centred on their common interests.

Indeed, the furthering of intra-Gulf economic synergies will remain a pipe dream in the absence of any coordination of the strategies of economic diversification conducted independently by each nation. This would require a mindset in contradiction with the political realities of a region where “nothing can budge,” without the support of the two heavyweights, Saudi Arabia and the United Arab Emirates, we are told by a source close to the decision-making circles in the Gulf, who regrets that the interests of the smaller nations are shoved into the background. The logic of “might makes right” is re-enforced by the rise of nationalism and the emphasis laid on the feeling of belonging to a national community rather than a regional identity embodied by the GCC. While the region is already having a hard time healing the wounds left by the violent diplomatic crisis that pitted Qatar against its neighbours between 2017 and the beginning of 2021, the pangs of division, economic in the present instance, haunt people’s minds again.