ASEAN’s Gulf ties put diversification to the test

ASEAN has long framed trade diversification as a strategic priority, but in practice its economic ties have become more regionally concentrated, with engagement with the Gulf Cooperation Council lagging behind earlier ambitions. Geopolitical shocks and shifting trade dynamics have renewed interest in ASEAN–GCC cooperation, particularly as both sides explore opportunities in renewable energy and non-oil sectors. But sustaining this momentum will require stronger institutional follow-through, as the partnership remains a key test of whether ASEAN can translate diversification rhetoric into reality.

For ASEAN, trade diversification has long been a promise deferred. Since 2015, regional leaders have paid lip service to the ‘strategic imperative’ of broadening partnerships with emerging economies. In practice, ASEAN’s trade has instead grown more regionally concentrated as the bloc consolidates ties with existing dialogue partners in the Asia Pacific.

This gap between rhetoric and reality is most glaring in ASEAN’s engagement with the Gulf Cooperation Council (GCC), comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. In 2010, the two sides adopted an action plan to deepen trade and investment, which called for a free trade agreement (FTA) and collaboration in sectors such as agriculture, energy and tourism.

But it was not long before momentum stalled amid Qatar’s 2017 diplomatic crisisand the COVID-19 pandemic. By 2023, ASEAN–GCC trade stood at US$130 billion, a 1 per cent drop from a decade earlier. The GCC’s share of ASEAN’s total trade had fallen to 3.8 per cent by 2023, roughly half its 2008 peak. Not even 0.2 per cent of ASEAN’s 2023 foreign direct investment originated from the Gulf, with most coming from the United Arab Emirates.

The two blocs have sought an institutional reset. The blocs’ 2025 Joint Declaration of Economic Cooperation and 2024–28 Framework of Cooperationbroaden engagement to include support for small businesses, structured public–private dialogue and sustainable growth. In May 2025, Malaysia hosted the first ASEAN–GCC–China Summit which, beyond its symbolism, led to the establishment of a tripartite business council in January 2026.

Then came the Iran war. Periodic attacks on the Gulf’s energy and logistical infrastructure since late February 2026 — alongside the closure of the Strait of Hormuz — have upended fuel flows and stymied commodity production. The crisis has raised existential questions about global dependence on critical chokepoints and the stability of GCC nations in a volatile neighbourhood.

But it would be reductive to dismiss the GCC as a risky partner based on this episode alone. GCC governments have already built ‘substantial policy buffers’ through fiscal and structural reforms to non-oil sectors. If anything, the 2026 crisis strengthens the case for diversification.

The institutional terms of the ASEAN–GCC partnership have evolved. The 2024–28 Framework of Cooperation emphasises the joint development of renewable energy solutions. In December 2025, UAE renewable energy firm Masdar signed a partnership with Malaysian counterparts to develop Southeast Asia’s largest floating solar farm, with another expansion planned in Indonesia. Gulf sovereign wealth funds manage trillions in assets and are looking eastward. Even as GCC states consider ‘reviewing’ investments, Southeast Asia remains an attractive destination for foreign direct investment because of its industrial base, favourable infrastructure and growing interest in energy transition.

Washington’s persistently erratic trade policy makes it doubly important for ASEAN to diversify both export markets and products. ASEAN’s trade with GCC economies remains heavily concentrated in mineral fuel imports — representing nearly two-thirds of total ASEAN–GCC trade — which is imbalanced and unsustainable. Yet ASEAN’s export profile to GCC economies is unusually weak. Machinery and electronic equipment, including semiconductor components, feature far less prominently in ASEAN’s exports to the Gulf than in its global export basket.

Expanding these exports could help reduce overdependence on final US demand, particularly amid the looming threat of Section 301 tariffs. Malaysia, Thailand and Vietnam are major exporters of photovoltaic cells for solar panels, most of which flow to US buyers. At the same time, GCC has the world’s fastest-growing renewable energy market outside China, with ambitious national targetsto increase solar power generation. Though ASEAN cannot fully substitute the far larger US market, the Gulf can offer complementary demand in certain sectors exposed to trade policy uncertainty.

Bilateral initiatives are also helping to overcome inertia. The UAE–Malaysia FTA — Malaysia’s first with a Gulf partner — came into force in October 2025 and has quickly become Malaysia’s fourth most utilised bilateral FTA by export value. The Philippines signed its own FTA with the United Arab Emirates in January 2026 while Indonesia expects to conclude trade negotiations with the GCC by late 2026. Regular engagement with Abu Dhabi has intensified since ASEAN designated the United Arab Emirates as a Sectoral Dialogue Partner in 2022.

But institutional follow-through is critical for this momentum to last. ASEAN and the GCC should establish a trade and investment framework to formalise cooperation, harmonise standards and protect investment. The framework could provide continuity that outlasts political cycles, paving the way for an eventual FTA. Sharper national trade promotion strategies and closer coordination between export agencies would also help bolster ASEAN–GCC commercial ties in an uncertain geopolitical environment. Trade ministries and chambers of commerce across both regions should work together to revive the GCC–ASEAN Investment Conference, which was proposed in 2010 but never materialised.

At the 47th ASEAN Summit in October 2025, the bloc renewed its longstanding objective of elevating external economic partnerships but raised the stakes, seeking diversification not for its own sake but to advance a global agenda around rules-based multilateralism. Cooperation with the GCC is a litmus test of this commitment. After years of false starts, the two sides are beginning to capitalise on unexploited trade and investment opportunities. The bigger challenge is to sustain the momentum so that ASEAN’s promise of diversification does not ring hollow.