The GCC’s open-door economic policy is at a crossroads as geo-fragmentation rises and the US-China rivalry heats up.
A long-held policy of the six-member Gulf Cooperation Council (GCC) is to forge commercial ties with countries around the world, regardless of their political inclinations. Amid geoeconomic headwinds, that policy now hangs in the balance.
Western attempts to decouple from China and a drastic turnabout in US trade policy are “key strategic” concerns for leaders and executives in Bahrain, Kuwait, Oman, Qatar, and, especially, Saudi Arabia and the United Arab Emirates, says Steven Wright, a political economist at Hamad Bin Khalifa University in Doha.
These developments are “increasingly feeding into economic policy discussions,” pointing to an “inevitable shift” from the “straightforward balancing act” the GCC has maintained, where security comes from the US and trade depends on China, to a “more complex calculation,” Wright says.
The Persian Gulf states are still looking to preserve and expand bilateral business ties, at least for long enough to build domestic capacity. But the clock is ticking.
Gulf state officials see the US-China rivalry as “a significant issue” as they strive to diversify away from oil and gas, and are responding with “a delicate game of balance,” says M.R. Raghu, chief executive of Marmore MENA Intelligence, a subsidiary of Kuwait-based asset manager and investment bank Markaz,
While President Trump’s tariff and trade policies might push the Gulf states further into China’s pocket or prompt them to search for other partners, their reliance on the US for security makes it unlikely that any “significant shifts” will occur in the short term, he argues. “GCC states are likely preparing for multiple scenarios, emphasizing diversification and flexibility.”
In the same vein, it is naïve of the US to expect the Gulf to fully distance itself from China and other Asian nations as cooperation runs wide and deep, especially in the massive regional construction market, says Junaid Ansari, director of investment strategy and research at Kuwait-based Kamco Invest.
“This is expected to continue in the near to mid-term as these countries are heavily involved with the strategic visions of GCC governments,” Ansari notes.
In fact, some experts believe that China’s long-term political stability, strategic planning and focus on development, might ultimately make it the preferred partner.
A closer look at three industries—AI, renewable energy, and critical minerals—highlights the region’s position while central turf in a rising great-power competition as the US and China vie to entrench their products in the region to keep each other out, providing insight about how difficult the GCC’s balancing act really is.
All About AI
The GCC—and particularly its heavyweights, Saudi Arabia and the UAE—are betting big on AI. But this is a space where the policy of pursuing the best offer, regardless of who is offering, is complicated by the growing US-China animosity.
In its latest annual report, the US-China Economic and Security Review Commission—a bipartisan advisory panel of the US Congress—singled out AI tie-ups between Chinese and Gulf firms as a “new vector of vulnerability.” Already in 2023, then-President Joe Biden tightened restrictions on exports of dual-use semiconductors to a host of countries, many across the Middle East, that could provide a backdoor for Chinese access.
But advanced American chips are precisely what Saudi Arabia and the UAE need to turn themselves into global data-center hubs, and they appear willing to create at least some distance from China to get access.
Backroom negotiations led to a $1.5 billion investment by Microsoft last year in Emirati AI development firm G42, which is backed by Mubadala, an Abu Dhabi sovereign wealth fund. The deal, which required G42 to divest its holdings of Chinese tech companies, exemplifies both the concessions the Gulf has been open to making and the complexities that remain. G42 sold the “blacklisted” stakes, but to Lunate, an alternative asset manager in Abu Dhabi supported by ADQ, another emirate sovereign fund.
Other data-center partnerships have followed in the US and the Gulf involving American, UAE, and Saudi entities from Google to Dubai-based developer Damac to MGX, a technology investment firm launched last year with G42 and Mubadala as foundational partners.
This flurry of activity suggests the Gulf is striving to stay in Washington’s good graces and preserve its access to next-gen chips while it advances its homegrown tech ecosystem. But Saudi Arabia and the UAE are also continuing to cooperate with Chinese tech companies, which dominate the development of 5G telecommunication networks across the GCC.
Junaid Ansari of Kamco Invest says he has yet to see indications that GCC governments or firms are taking sides.
“Since the present situation is very volatile, it is best to keep an open policy,” he cautions.
Diversifying During Change
Could the moment come when the Trump administration issues a “You are either with us or against us”-style ultimatum?
This is no laughing matter for the Gulf, which is seeking to transition away from its hydrocarbons-reliant economy amid growing global turbulence.
The GCC has thrived in the post-pandemic years thanks to diligent governance, development programs like Saudi Arabia’s Vision 2030, and the wars in Ukraine and the larger Middle East. Meanwhile, the Gulf region has become a safe haven for businesses of all sorts. International Monetary Fund Managing Director Kristalina Georgieva recently called it “a bright spot in the world economy.”
There are challenges, however, and the fraying of global trade makes tackling them that much harder.
A glut of supply amid soft demand has kept crude prices below many Gulf states’ breakeven levels, putting pressure on public finances. The massive spending required by Vision 2030 is straining Saudi coffers as private investment has been slow to come aboard. Bahrain’s soaring debt led to Fitch Ratings downgrading its outlook to negative in February. And Kuwait is gripped by political uncertainty, nearly a year into an indefinite suspension of parliament.
Against this backdrop, Trump’s likely inflationary approach to economic policymaking risks keeping interest rates high in the US and the Gulf, where currencies are pegged to or weighted toward the US dollar. A slowdown in global consumer demand would impact the GCC, which depends on an unrestrained flow of goods and services. And the US president’s promise to “drill, baby, drill!” could cause oil prices to slide further, especially as OPEC+ is taking steps to hike output.
“It is very difficult to assess where things will converge,” says Ansari, noting that widespread volatility and the “brute nature” of some of Trump’s policies make shifts in international relations likely.
For the GCC, the way forward remains centered on economic reform and diversification, like raising some corporate, individual or sales taxes to improve the health of public finances and streamlining regulations, Georgieva said in Dubai in February.
Localization, Localization, Localization
Renewable energy is an area where, for lack of alternatives, the Gulf states continue to work closely with China, even as they push to develop their domestic industries.
In 2022, the UAE and Saudi Arabia imported 11.4 GW of photovoltaic components from China, a 78% year-on-year jump. Today, electric Chinese cars dot Dubai’s highways as they offer a better bang for the buck than the likes of Tesla.
The Middle East, led by Saudi Arabia, Iraq, and the UAE, received more investments funds through China’s Belt and Road Initiative than any other region last year, a total of $39 billion. Nearly $12 billion went to projects in the solar, wind, and waste-to-energy spaces.
Here too, however, change is afoot.
“What I think is quite noteworthy is how GCC states are increasingly looking to develop their own domestic manufacturing capabilities,” says Wright at Hamad Bin Khalifa University.
Oman’s Mays Motors recently delivered its first electric vehicles (EVs). Saudi Arabia’s Ceer says it will follow in early 2026. And one of Saudi Arabia’s biggest bets in EV manufacturing is a partnership with California-based Lucid Motors.
The Gulf retains an outsized reliance on China for imports of renewable-related raw materials and finished products, Ansari notes. But this will change, he predicts, as regional companies grow capacity and Saudi Arabia develops alternative procurement channels for critical minerals and rare earths.
Copper, lithium, nickel, scandium, and gallium—crucial inputs for wind turbines, EV batteries, and other such systems—will become exponentially more sought-after. China controls large shares of deposits and upward of 90% of processing capacity for some of these elements. But Saudi Arabia sees mining as another vital pillar of economic growth.
Its state-owned mining company, Ma’aden, is pursuing more domestic output, including through partnerships with start-ups from Australia, the US, and elsewhere, to identify untapped riches under the Arabian Shield rock formation and to recycle elements from industrial waste.
Manara Minerals, a joint-venture between Ma’aden and the Public Investment Fund—the preeminent Saudi sovereign investor—is on a global shopping spree for mines, or shares thereof, from Zambia to Chile. A year ago, Manara bought 10% of Vale Base Metals, a subsidiary of the Brazilian metals and mining giant, for $2.5 billion.
That’s an example of the GCC looking for partners beyond the US and China as it seeks to protect its independence and, especially for Saudi Arabia, to raise its global profile, says Raghu of Marmore MENA Intelligence.
The Gulf is proving sophisticated and pragmatic in how it advertises deals, says Wright, including emphasizing those with US companies in an effort to appease Trump. But the superpowers’ own very different approaches to relationship-building beg the question of which one the Gulf states prefer in the long term.
“The key question,” he argues, “is what has more sustainability: a large-scale transactional announcement that is unlikely to be fully realized, or a series of billion-dollar agreements in a variety of sectors? My view is that the trends with China look far more promising over the long term.”
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