A Relationship at a Crossroads

Introduction

Negotiations between the European Union (EU) and the Gulf Cooperation Council (GCC) on a free-trade agreement are on hold. Instead, bilateral arrangements with individual Gulf countries have come to the fore, as recent negotiations between the EU and the United Arab Emirates suggest. Opting for a comprehensive approach, this paper argues that a closer relationship between the two blocs as a whole offers strategic advantages across sectors in an increasingly multipolar world. This departure from the status quo of piecemeal progress is important, particularly as setbacks suffered by the post-World-War-II regime of global free trade threaten the export-led growth models of leading economies in Europe and the GCC.

Specifically, the stalled process to reach a comprehensive EU-GCC free-trade agreement exemplifies the need to prepare measures that mould new economic flows that play to each region’s strengths. Therefore, this policy brief argues for an equitable, mutual, and pragmatic economic outreach between both blocs – enhanced via an EU-GCC Human Capital Strategy and bilateral agreements in emerging sectors such as clean energy.

Successful Outreach Goes Both Ways

GCC countries have an interest in productively investing their hydrocarbon rents in entities and projects with high rates of return. The EU represents an enticing target in this regard. However, looking at investment stocks between the two regions from 2019-2023, EU-27 investments in the GCC have almost always marginally exceeded their Gulf counterparts’ stock in Europe. In 2023, for instance, the GCC’s investment stock in the EU-27 was 215.4 billion Euros, in contrast to 236 billion Euros vice versa (see Table 1 below).

This indicates that the GCC should boost its investment in the EU to reflect a stronger investment momentum in its relationship with Europe. At the same time, EU outreach towards the GCC for investment remains subpar, even as the GCC invests heavily in competing markets in Asia and commits to increase financial flows to the US.

Table 1. Investment Stock between the EU-27 and the GCC, 2019-2023

The table presents investment stock between the European Union and the Gulf Cooperation Council from 2019-2023, stated in billions of Euros. ¹

Even at the German-GCC level, there is a lack of investment promotion targeting the Gulf. For example, none of the Germany Trade and Invest (GTAI) international offices are in the GCC. Meanwhile, Bahrain’s investment-promotion agency has an office in Germany¹, and Invest Saudi lists Berlin as a location.³In contrast, German Chambers of Commerce Abroad (AHK) throughout the Gulf foster investment from Germany in GCC countries. While efforts to boost European investment in Gulf countries are important, the commitment of Gulf and European countries to expanding GCC investments in the EU should be equally large in order to strengthen bilateral economic ties sustainably. The formation of the European Chamber of Commerce in Riyadh and the extension of EU delegations in the Gulf are first steps towards closer economic cooperation. To complement these initiatives, the EU could consider launching a dedicated mission to promote investment from the GCC.

Table 2. Trade between the EU-27 and the GCC, 2019-2024

The table presents the European Union’s exports to the Gulf Cooperation Council from 2019-2024, along with EU imports from the GCC, stated in billions of Euros. ⁴

On trade, the relationship should see the EU boosting its exports to the GCC. While Table 2 displays the EU’s consistently positive trade balance vis-à-vis the GCC, the volume of trade between the two blocs could be expanded. According to the International Trade Centre (ITC), the products with the highest export potential gap – defined as the difference between actual and potential exports – from the EU and Western Europe to the Middle East are motor vehicles, gold for use in electrical products, and pharmaceutical products.⁵ Despite increasing competition from Asian producers, European products continue to enjoy a reputation of superior quality among Gulf consumers. The EU should exploit this gap to boost its exports further, for instance by adapting regulation to the specifics of the GCC market (e.g. halal products or electric vehicles). On the other hand, easier access to the EU market for the GCC could be the result of clearly defined regulation on sustainability criteria or refined investment rules for sovereign wealth funds. Meanwhile, Gulf countries can help by harmonizing regulation and standards, reducing tariffs, and liberalising foreign ownership rules. Fundamentally, this untapped export potential underscores why concluding a free-trade agreement with the GCC would be in the EU’s interest.

Beyond each region playing to its respective strengths in investment and trade, human capital development is another area of significant untapped potential between both regions. An EU-GCC Human Capital Strategy could create dedicated task forces that work on mutual knowledge sharing and facilitate workshops on communication, cultural habits, and ‘unwritten rules’. This groundwork is necessary to deepen ties between entrepreneurs, businesses, and industry representatives, thus paving the way for progress on the macroeconomic level. Reports on key findings can be shared with the public and promoted in trade or investment missions as well as other relevant institutions. As trust and mutual understanding improve, next steps towards redefined business relations will crystallise and bear fruit, expanding the potential for deepened EU-GCC trade and investment ties. Consequently, this approach offers an alternative to the mercantilist, transactional blueprint for the global economy being proposed by Washington.

New Technologies Pave the Way for Sustainable Partnerships

To achieve such synergies, both sides need to perceive their partnership through a forward-looking lens. The global economy is undergoing a technological transformation, driven by decarbonisation, digitalisation, and green industrial policy. Both regions have a strategic interest in not being left behind. In this context, deeper cooperation around emerging technologies offers a powerful lever to not only reinvent the economic relationship but also position the EU and GCC as complementary partners.

One example is rethinking the energy trade in general and clean hydrogen in particular. While clean hydrogen markets are still nascent, hydrogen and its derivatives are key to both decarbonisation in Europe and economic diversification in the GCC. To take renewable hydrogen as an example, solar and wind energy can be abundant resources in the Gulf, once the infrastructure is scaled up.

In light of the central importance of mutual knowledge exchange, the development of plants and electrolysers could be undertaken by European champions, so that GCC countries can provide the continent with competitively priced clean hydrogen and its derivatives. However, the case of hydrogen exemplifies existing barriers that need to be overcome: while the EU is setting standards in the regulation and certification of this new technology – such as the Delegated Acts and the definition of Renewable Fuels of Non-Biological Origin (RFNBOs) – most GCC countries are slow in adapting a comprehensive regulatory approach to clean energy products.

Enhanced clarity and trust from both parties has the potential to facilitate future agreements that benefit from predictable, reliable rules. To illustrate, a boost of investor confidence could promote strategic investments into GCC clean energy markets that in turn supply Europe’s energy transition. Complementarily, investments from the GCC to Europe can support the Gulf’s multiple diversification strategies. Moreover, the proposed EU-GCC Human Capital Strategy can be applied to strategic sectors such as clean energy - for instance, through vocational training programmes or joint research.

The potential implications are transformative. First, renewable hydrogen production can accelerate the domestic supply of sustainable energy in the Gulf, consequently contributing to the diversified energy mix that countries like Oman and Saudi Arabia are envisioning in the medium and long term. Second, hydrogen can be transported to European partners, enabling the decarbonisation of hard-to-abate sectors like the cement or chemicals industry.

However, while the uptake of these new technologies will not be finalised by 2030, bilateral agreements among first-mover countries in both regions can take the lead, thereby paving the way for broader multilateral cooperation as the hydrogen market becomes more clearly defined. For instance, Saudi Arabia, with its large landmass, could learn from the German experience of quickly expanding the share of renewables in the energy mix. In turn, German stakeholders can learn from Saudi experts about how to apply renewables in harsher climatic conditions, thereby laying the groundwork for cooperation on hydrogen projects along the supply chain.

Conclusion

This brief argued that the path towards improved EU-GCC economic cooperation entails ambitious policies that play to the respective strengths of both regions, allowing each to complement the other through deepened trade and investment ties. To pave the way for such deepened economic engagement, decision-makers from both regions must ensure that structured cultural exchange and mutual learning accompany initiatives at the macroeconomic level. If implemented, the proposed multi-level, multi-faceted agenda can position the EU and GCC to capitalise on technological advancements and transformations in the energy market, doing so in a manner that builds on their common characteristics as export-oriented economies in a world increasingly defined by fragmentation and transactional ‘deals’.

Endnotes

1. Eurostat 2025: EU direct investment positions, flows, and income, by countries (BPM6), 12.08.2025, in: https://ec.europa.eu/eurostat/databrowser/view/bop_fdi6_geo__custom_16928664/bookmark/table?lang=en&bookmarkId=02591b81-c8f8-45e6-9e89-7e14dd28f80a&c=1748763527254 [07.09.2025].

2. Bahrain Economic Development Board 2025: Speak with our team, in: https://www.bahrainedb.com/contact-us [07.09.2025].

3. Invest Saudi 2025: Contact Us, in: https://www.investsaudi.sa/en/contactUs [07.09.2025].

4. Eurostat 2025: Extra-EU trade by partner, 18.08.2025, in: https://ec.europa.eu/eurostat/databrowser/view/ext_lt_maineu/bookmark/table?lang=en&bookmarkId=9e0e9b30-3477-4b81-a465-e9672dcdd924&c=1748763421058 [07.09.2025].

5. International Trade Centre 2025: Export Potential Map, in: https://exportpotential.intracen.org/en/ [07.09.2025].