Russian oil dilemma may kickstart EU-GCC trade deal

A new partnership adopted today between the European Commission and the Gulf Cooperation Council (GCC) could kickstart stalled talks on a free trade agreement.

The High Representative and the European Commission said in a joint communication that the strategic partnership would focus on areas such as energy security, climate change and the green transition, digitalisation, trade and investment.

It also committed to achieving visa free travel for Gulf countries, saying it is a “shared interest and objective” for the EU and the GCC.

Josep Borrell, High Representative vice-president, said: “At a time of insecurity and significant challenges to the rules-based international order, aggravated by Russia’s war on Ukraine, the European Union and Gulf countries stand to gain from a stronger and more strategic partnership stretching over a number of key areas. 

“We need to work more closely together on stability in the Gulf and the Middle East, on global security threats; energy security, climate change and the green transition, digitalisation, trade and investment. We also need to strengthen contacts between students, researchers, businesses and citizens.”

Wes Schwalje, co-founder of Tahseen Consulting, told AGBI that the European Union’s attempt to institute an embargo on Russian oil has “necessitated an energy security pivot which has provided the GCC an opportunity to redefine its relationship with Europe”. 

“The Joint Communication on a Strategic Partnership with the Gulf updates the EU-GCC Cooperation Agreement that was signed over 30 years ago,” Schwalje said. “The new cooperation framework is also likely to revive talks on the EU-GCC free trade agreement which have languished since 1990 and stopped in 2008. 

“By reaffirming the strong relationship between the EU-GCC, the new cooperation framework gives focus to mutual efforts to boost trade and investment through cooperation on digital economy development, entrepreneurship ecosystem development, green energy, and sustainable tourism.”

Peter Stano, lead spokesperson for Foreign Affairs and Security Policy at the European Commission, said that in the short-term the EU “will need the help of Gulf countries in stabilising oil and energy markets” and import low-carbon sources of energy for its own smooth green transition. 

But he added that in the medium-longer term the EU can help Gulf countries move away from dependency on fossil fuel and in their ambition to become producers and exporters of renewable energy, meeting their net-zero goals.

Stano also said the EU will work on a Mediterranean Green Hydrogen Partnership that will involve Gulf countries.

Borrell added the strengthened partnership will be beneficial both for the EU and its Gulf partners, with the EU being the world’s largest single market, a leader in research and innovation, an important security actor in the GCC region and at the forefront of global challenges such as climate change and digitalisation. 

On the flip side, GCC countries are reliable liquefied natural gas providers and have some of the best solar and wind resources in the world, whose development can be key in implementing mutual strategies to meet climate commitments as well as economic goals, Borrell noted. 

The partnership deal also aims to bring about closer inter-cultural cooperation, mobility for youth and students and higher education cooperation and exchanges.

The statement said that joining forces to address climate change and harness the opportunities provided by the green transition is “paramount and mutually beneficial”. 

It added that the Gulf region is particularly impacted by climate change and the EU, a pioneer in initiatives for a climate transition, can be a partner in developing the know-how and expertise to address this challenge.

EU-GCC relations were previously based on a Cooperation Agreement from 1988, which established regular dialogues on cooperation between the two regions on trade and investment issues, macro-economic matters, climate change, energy, the environment, and research.

In May 2017, the EU and the GCC launched a dedicated dialogue on trade and investment issues, involving the private sector aimed at encouraging greater two-way trade and investment flows.

The EU and GCC launched negotiations for a free trade agreement (FTA) in 1990 but negotiations were suspended in 2008 after failing to overcome several challenges.

How the EU-GCC trade figures work out

• According to data from the European Commission, the GCC region is the EU’s sixth largest export market and an important source and destination of investment for EU member states
• The EU is the second biggest trade partner of the GCC (after China), representing 12.3 percent of the GCC’s total trade in goods with the world in 2020
• EU-GCC total trade in goods in 2020 amounted to €97.1 billion ($102 billion). The EU’s imports were worth €29.6 billion and they were led by fuel and mining products as well as chemicals
• The EU’s exports totalled €67.5 billion and were dominated by machinery and transport equipment, chemicals and agriculture and raw materials
• In 2018, total EU foreign direct investment outward stock in the GCC region amounted to €76.9 billion