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Truss appointment as UK PM is good news for Gulf, say experts

Liz Truss Reuters/Phil Noble
Liz Truss arrives at Conservative Party headquarters in London after being announced as Britain's 56th prime minister
  • Former foreign secretary has played key role in trade talks
  • Promise to act quickly to tackle surging energy prices
  • Scope to increase LNG import capacity from Qatar 

Liz Truss is to be the UK’s next prime minister, after beating former chancellor Rishi Sunak in the contest to lead the Conservative Party.

Truss secured 81,326 votes to Sunak’s 60,399 in a ballot of party members. She will take office on Tuesday after a meeting with the Queen.

The new prime minister’s in-tray is stacked with challenges: double-digit inflation, an acute cost-of-living crisis, the spectre of a recession, a raging war in Ukraine, the lingering impacts of the coronavirus pandemic and increased threats from climate change.

News of her appointment will be keenly observed by the Gulf given it comes less than two weeks after the official start of UK-GCC trade talks.

As foreign secretary under Boris Johnson, Truss is already a recognised figure in diplomatic circles and has played a key role in presiding over the UK-GCC trade talks.

Freddie Neve, senior Middle East associate at Asia House, told AGBI: “The current trajectory of UK-GCC relations is likely to continue with Liz Truss becoming prime minister.

“She will have a good grasp of the detail relating to UK-GCC free trade talks and the wider UK-GCC relationship from her time as international trade secretary and foreign secretary.

“She has been an advocate for closer economic and security ties with the Gulf states.

“As Asia House research has noted, UK exports to Asia have slowed in recent years, highlighting a need for a renewed focus in trade policy.

“The UK-GCC FTA talks offer a potential catalyst to boost exports, so we anticipate that Liz Truss’s government will continue working towards a deal.”

In a statement at the time, Truss described the GCC states as strong economic partners of the UK, adding that the free trade agreement would enhance the UK’s economy and provide new investment opportunities.

The GCC is equivalent to the UK’s seventh largest export market, with total bilateral trade worth £33 billion ($38 billion) last year.

A deal with the GCC is expected to increase trade by at least 16 percent, add at least £1.6 billion a year to the UK economy and contribute an additional £600 million to UK workers’ annual wages.

 “Liz Truss has already invested considerable energy in supporting the UK-Gulf trade deal and her multiple visits to the region give a very clear indication that she values the UK’s relationship with its Gulf partners,” said Dr Neil Quilliam, associate fellow of the MENA Programme at Chatham House.

“Whomever she appoints as foreign secretary, we can expect to follow closely in her footsteps.”

There is growing speculation that James Cleverly, currently serving as education secretary, will be appointed foreign secretary.

“Given his former role as minister for the Middle East and North Africa, it could pave the way for a stronger start to relations with the Gulf economies than other candidates if Mr Cleverly has had dealings with them before,” said James Swanston, Middle East and North Africa economist at Capital Economics.

Natasha Moor, senior adviser at Manara Global and former Downing Street chief press officer for Boris Johnson, said of the new prime minister: “While she will be keen to look ahead to new opportunities globally, at the top of her agenda will be shoring up stability and support at home immediately.

“James Cleverly knows the region well and will be optimistic about continuing to grow and strengthen the UK’s long-standing partnership with the Gulf.

“He will be working hard alongside the UK PM to build on the GCC-UK trade talks already underway, as well as pursue new opportunities on investment, energy innovation and security with the region.”

Partner of strategic importance

The Gulf will also be considered a partner of strategic importance given the UK’s escalating energy crisis.

Average household utility bills are set to jump by 80 percent in October to £3,549 a year, before an expected increase to £6,000 in 2023. Food prices are also rising sharply, placing great pressure on personal finances.

Truss has promised to act quickly to tackle surging energy prices, saying she will come up with a plan to tackle rising bills and secure future fuel supplies by the end of this week.

“On the oil front I imagine that the UK will be hoping that it can source more oil from the Gulf states, though given OPEC+’s more cautious approach at the last meeting and likely similar move later today, the UK could face more competition to source it from the Gulf if output is not being raised as quickly as previously expected,” Swanston said. 

Historically the UK has relied heavily on Qatar for imports of liquefied natural gas (LNG) and figures for August showed that they made up a majority of the UK’s imports.

Given Qatar’s sizeable role in the global gas market and the UK’s need to offset the loss of Russian exports, it would be surprising if it doesn’t look to Qatar to plug this gap.

“In terms of the scope to increase, the UK’s LNG import capacity stands at around 4.3bcm/month and in August the UK imported around a quarter of that, so there is scope to increase this further,” Swanston said, noting that there may be limitations to boost Qatar’s LNG imports to the UK.

“For one thing, Qatar is producing at or near to its maximum capacity and there are no plans to raise output with new facilities anytime soon,” he said.

“Another is that a large share of Qatar’s LNG exports are on long-term contracts into Asia, leaving a smaller share available for countries to compete over.

“At present, the price of LNG to be purchased in Europe is higher than that of the UK, so it may be more favourable for Qatar to sell to Europe directly rather than to the UK.

“Further ahead, though, once the North Field mega-facility comes online from 2025 there should be scope for Qatar’s exports of LNG to the UK to increase more. Shell being signed up as a major partner in the project will add to that favourability.”

Quilliam added: “While there may be a desire to source more oil from its partners Saudi Arabia and the UAE, this is unlikely to be realised, and the prime minister knows better than to make such a bold request – as US president Joe Biden’s visit showed.

“Looking for more LNG from Qatar will come with a price tag determined by market prices, rather than a deal based on favourable terms.”