The Gulf Cooperation Council (GCC) has never been tranquil, but relations within its ranks have become remarkably prickly in recent years. Just over six months since the Al Ula Declaration brought an end to the divisive embargo on Qatar, the bloc must again contend with a growing, and potentially more damaging, rift as Saudi Arabia and the UAE are finding themselves at loggerheads.

Local and regional dynamics have shifted, and the two states are discovering that they have fewer shared objectives. The COVID-19 pandemic has also led to a reinvigorated focus on domestic economic concerns: both seek to accelerate the process of diversification in the face of a secular decline in oil demand. In a tighter post-pandemic investment environment, this is increasingly viewed as a zero-sum game.

That means Saudi Arabia, a market rife with operational and reputational risks, must compete with emirates that long ago established themselves as regional business hubs. To do so, it has gone on the offensive. Throughout July, Riyadh revoked multiple intra-GCC preferential tariffs, ostensibly to insulate domestic industries from competition. The changes, which include the exclusion of goods made in free zones, with Israeli input, and produced by companies with a workforce of less than 25% local workers, disproportionately impact Emirati exports. The UAE is throwing its own weight around too: Abu Dhabi recently paralysed OPEC+ and extracted concessions to boost its own production.

Bilateral tensions between the Gulf’s largest economies warrant concern, but so too do the regional implications. The move puts the GCC’s longstanding objective of establishing a single market further out of reach. The revocation of preferential tariffs by the region’s largest importer weighs heavily on diversification prospects for weaker neighbours, particularly Bahrain and Oman. Although not yet a crisis, a decoupling between Saudi Arabia and the UAE would signal more volatility in a region once considered a stable outlier in the Middle East.