Saudi Arabia is considered to be UAE’s most important neighbor. It is the largest neighbor in terms of economy, geographical size and population. KSA’s gross domestic product (GDP) in 2007 was $ 376 billion while UAE’s GDP was $193 billion . Both UAE and KSA are oil-producing countries, which implies that the exports and imports commodities are not crude oil. However, UAE imports refined petrochemicals and plastics, which are considered to be the downstream product of crude oil. Other commodities the UAE imports are steel, cement, fertilizers and foodstuff. On the other hand, UAE exports to Saudi Arabia are re-exports goods such as cars and electrical commodities. In fact, UAE is the third most important re-export center in the world after Hong Kong and Singapore .
Figure.1 UAE imports from KSA in million dirham Vs. years
As it’s shown in figure.1, UAE imports from Saudi Arabia were growing slowly from the years 1984 to 1989. At this period, the imported goods were mainly foodstuff and medicine and there was no heavy industry commodities imported. From year 1990 until 1994 it shows negligible growth in imports. This was the results of the second gulf war where Saudi Arabia was directly involved in the war and UAE indirectly involved. At the beginning of the new millennium, UAE’s economy starts to boom up as well as the population. Therefore, the UAE demand of imports is increasing dramatically. From 1999 until 2006, the UAE demand for steel and cement was high to satisfy the mega construction projects in UAE. In fact, 25 percent of the world construction cranes were in UAE by 2006 . The demand for steel and cement is expected to continue because of real estate booming in UAE.
At 2007, the imports from KSA dropped dramatically. This drop could be explained in many ways. It could be that KSA needs the steel and cement for domestic construction project. For instance, by 2006 KSA starts building King...