Overview
Tensions between two of the Arab Gulf’s most important power players, Saudi Arabia and the UAE, have increasingly broken containment in recent months, highlighting risks for US strategy and international businesses. Ties reached an open crisis in December, when Emirati-backed secessionists openly fought the Saudi-backed government in Yemen, but tensions were ultimately calmed. Risks spilled into the business sphere over the past month, with cross-border payments reportedly blocked and overland shipments into Saudi Arabia delayed. But is it a rift, a rupture, or simply tensions between mostly aligned states vying for the same economic and diplomatic resources? Riyadh and Abu Dhabi are far from an open schism, and remain aligned on significant economic and foreign policy objectives – especially as the pressures of the Iran war have both capitals projecting unity in the name of economic stability. Growing tensions reveal diverging strategic visions for the region and the direct competition built into both states’ economic diversification ambitions. A more open rift in the future is possible and could bring with it significant implications for US strategy, global energy markets, and multinational businesses (for whom both countries are major markets and sources of capital).
New Evidence of Tensions
In the last several weeks, media reporting on bilateral tensions has significantly increased. In early July, Emirati executives reported that financial transfers to the UAE from Saudi Arabia had been blocked and returned or stalled since May, with no official explanation. Days later, news outlets reported that trucks moving goods into Saudi Arabia were delayed up to several days, part of a months-long trend. While no official policy changes were announced, the episodes echo earlier Saudi-led business disruptions from disputes with Abu Dhabi, as well as other countries in the Gulf. In 2021, for example, overland trade briefly halted pursuant to Riyadh’s imposition of new import restrictions on the UAE amid a dispute over energy production and regional headquarters requirements for multinationals. When the Saudi and Emirati-led blockade of Qatar began in 2017, an order from the Saudi central bank advising against trade with Qatari banks in Qatari riyals was among the first moves, followed by both the UAE and Saudi Arabia cutting off all trade with Qatar.
The developments follow larger-scale shifts that, while not occurring at the bilateral level, have laid bare the growing rift. The UAE’s departure from OPEC in early May was taken as a strategic blow in Riyadh. The exit is broadly understood to have stemmed from an Emirati desire for more autonomy in its production policy to boost oil revenues in what the UAE sees as the last decade or two of robust oil demand. The departure was a direct rebuke of Saudi-led production policies, a blow to OPEC’s market dominance, and a signal of Emirati desire for greater strategic flexibility.
The UAE is also perceived as siding more decisively with the US and Israel over the course of the Iran war, although both Riyadh and Abu Dhabi are critics of the conflict and are pushing for a resolution. Israel has provided the UAE with Iron Dome air defense batteries, trained military personnel with the UAE, and reportedly also provided a surveillance system and a version of the Iron Beam laser defense system. Saudi Arabia, on the other hand, has turned to Pakistan for defense during the Iran war, taking delivery of, among other weapons, a Chinese-made air defense system under the auspices of the September 2025 Saudi-Pakistani strategic mutual defense agreement. These alternative arrangements represent the divergent institutional security frameworks that the Gulf capitals have spent years cultivating.
Why are Saudi and the UAE at Odds?
At a glance, it can be difficult to see what underlying strategic differences are driving the rift between Saudi Arabia and the UAE, both oil-rich, Sunni-majority, hereditary monarchies. While Riyadh and Abu Dhabi are often characterized as having divergent strategic visions for the region, their perspectives are, on the surface, remarkably similar. Both profess to prioritize diplomacy and regional stability in pursuit of economic growth and have sought rapprochement with regional rivals to varying extents. Both have historically been close partners of the US and beneficiaries of its regional security umbrella, but are increasingly hedging against US disengagement by fostering stronger ties to China and Russia. Both are pursuing near-identical economic diversification efforts to reduce long-term reliance on hydrocarbon revenues and grow their private sectors. It was even widely reported that President of the UAE Sheikh Mohamed bin Zayed (MBZ) acted as a mentor to Saudi Arabia’s de facto leader, Crown Prince Mohammed bin Salman (MBS), when he was named heir at just 31.
One element is simple competition – the countries’ economic diversification plans are remarkably similar, targeting growth in AI, tourism, finance, and logistics. Both countries aspire to be the region’s foremost Arab force, shaping events in the region and its surroundings. In a zero-sum economic and strategic environment, the two capitals are constantly at odds over limited investment dollars and influence.
But the two also diverge on substantive visions for the Middle East and its surrounding region. Saudi Arabia views the UAE as a destabilizing force in the Middle East and Africa, particularly concerning Abu Dhabi's regular backing of secessionist and anti-state proxies in various conflicts in the Gulf sphere of influence. In Yemen, Saudi Arabia supports the Internationally Recognized Government while the UAE backs the secessionist Southern Transitional Council (although Abu Dhabi formally revoked its support following the December flare-up in Yemen). In Sudan, the UAE has been widely accused of materially supporting the Rapid Support Force, the paramilitary rebel group currently at war with the state-backed Sudanese Armed Forces, which Saudi Arabia supports. In January, Saudi Arabia reportedly pressed the Trump administration (unsuccessfully) to impose sanctions on the UAE for its support to RSF. In recent years, the UAE rapidly deepened its relationship with Somaliland, the semi-autonomous breakaway state of Somalia. The UAE reportedly brokered Somaliland’s recognition of Israel and signed a major defense pact that permitted significant Emirati military buildup around the Gulf of Aden port of Berbera. Saudi Arabia, on the other hand, supports Somalia and its claim on Somaliland’s territory.
State cohesion and the maintenance of centralized authority are a much more salient concern for Saudi Arabia than they are for the much smaller UAE. Unlike the UAE, Riyadh has faced serious challenges to its authority during the Kingdom’s existence in the form of al-Qaida’s ascent and the 1979 seizure of Mecca. Further, it governs the largest land area in the Middle East and the biggest population of the Arab Gulf states, and its mid-20th century state formation was a messy process of defeating and coopting many disparate Arab tribes. The preservation of centralized state authority is paramount to Saudi Arabia in principle, and it sees Emirati support for secessionists as recklessly eroding that foundation.
Implications for International Businesses and US Gulf Strategy
Despite these differences, UAE-Saudi tensions are far from an open rupture. The rising tensions are unlikely to result in a repeat of the 2017 GCC-Qatar blockade, which was fueled by Qatari support for political Islamist groups and resulted in major economic disruptions until its conclusion in 2021. Earlier this week, Saudi and Emirati media ministers posted apparently coordinated social media messages affirming close bilateral ties and the importance of their shared history. A few days earlier, a senior Saudi advisor posted a casual photo of Saudi Defense Minister Khalid bin Salman, the crown prince’s brother, with UAE Vice President Sheikh Mansour bin Zayed Al Nahyan. The show of good faith is more about projecting unity to an increasingly jittery business audience than it is about reconciling deep-seated differences, however. Neither country can afford foreign businesses to pull back while the Iran war is roiling the regional economy. If or when a more stable status quo is found with Iran, more open competition is a distinct possibility.
A growing rivalry would pose serious risks for businesses with existing regional interests or those looking to benefit from Gulf diversification investment pushes. Saudi and Emirati sovereign wealth funds have pledged trillions towards attracting foreign businesses and startups to build out their private sectors around tech, tourism, finance, oil derivatives, and other industries. A more pronounced rift could force multinationals to choose one Gulf power over the other, cutting off significant market share and a source of capital in either scenario and imposing reputational costs in the region.
UAE-Saudi competition could also affect global energy markets. Competition over prices is mostly moot as oil flows through both the Strait of Hormuz and the Bab al-Mandeb are strangled. However, when the geopolitical situation calms, Emirati desires to sell more could clash with Saudi policies, whose budget is based on a higher price per barrel and has a smaller non-oil private sector to cushion price dips. And in the event of future supply shocks, OPEC will have less flexibility in the form of reserves to cushion prices.
Importantly, a broader UAE-Saudi rift would complicate US Gulf policy. Successive presidents have hoped to walk back US security commitments in the region, and President Trump has hoped to turn over more defense responsibilities to a unified and powerful group of allies (that are ideally broadly aligned with Israel). A lack of cooperation between Riyadh and Abu Dhabi will exacerbate the existing patchwork of defense capabilities in the Gulf and make it more difficult for the US to achieve the self-sufficient, pro-Israel Gulf bloc for which it hopes.
