(Bloomberg) -- Somalia recalled its envoy to Ethiopia after its landlocked neighbor signed a memorandum of understanding with Somaliland, a breakaway enclave, giving it access to the Red Sea.

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In exchange, Ethiopia will offer a stake in its flagship carrier, Ethiopian Airlines. It will also officially recognize Somaliland as a sovereign state, the region’s President Muse Bihi Abdi said. Ethiopia hasn’t explicitly said that it’s recognizing the breakaway region.

Somaliland unilaterally declared independence in 1991 from Somalia after the eruption of a civil war. Since then, it’s been pushing for international recognition that would allow it to source funding and aid.

Situated on the Gulf of Aden on the approach to a global shipping choke-point — the Bab El-Mandeb strait — that leads to the Red Sea and Suez Canal, Somaliland has oil deposits that have been explored by companies including Genel Energy Plc. Somalia regards the region, which is bigger than the US state of Florida, as an integral part of its territory.

The deal is viewed “as an act of aggression against Somalia’s sovereignty and territorial integrity, and as a direct threat to its maritime resources, which we will defend,” Prime Minister Hamza Abdi Barre said in the capital, Mogadishu, after a cabinet meeting on Tuesday. Somalia “will continue to defend its territorial integrity regardless of any costs,” he said.

Edna Adan, an envoy for Somaliland-Somalia talks said in a letter that “Somaliland has the authority to sign agreements with any authority as it wishes, and doesn’t require notice or acceptance from anyone else.”

Somalia temporarily cut diplomatic ties with Kenya when its neighbor said it would open a consulate in Hargeisa in 2020.



The move by Ethiopia, Africa’s second-most populated nation, may escalate tensions in the volatile Horn of Africa region and potentially upset other powers on the continent.

Read More: Red Sea Access Stirs Controversy in Volatile Region: Next Africa

The agreement will give Ethiopia the right to facilities on the Gulf of Aden that can be used as a military base and for commercial purposes for 50 years. It will be able to access them via a corridor leased from Somaliland, according to Bihi.

That means Ethiopia will have access to a very strategic corner of the world, which is the Bab el-Mandeb, said Rashid Abdi, chief analyst Horn of Africa & Middle East at Sahan Research. “This is where almost 12% of global economic trade is conducted and this area is also the place where there is the largest concentration of navies,” Abdi, said. It could “upset the existing military balance. Countries in the region — in principal, Egypt — will not be looking at it kindly,” he said.

Self-Declared Republic

While framing the agreement as commercial, eventually Ethiopia will likely construct its own port and a railway, and rebuild its navy, having already trained a sizable number of personnel, according to Abdi.

Somaliland is already the site of a United Arab Emirates military facility, as well as a port belonging to Dubai state-controlled harbor operator DP World Ltd. In the past, the self-declared republic asked Ethiopia to reroute its oil and gas exports via a proposed new pipeline, in a challenge to Djibouti’s long-held plans for such a conduit.

Somalia has no way of enforcing its will and has to work out a deal with Somaliland and Ethiopia, Abdi said.

“After the noise settles, there will be some kind of a deal made by the three administrations,” Abdi said. “In the short term, it’ll destabilize relations and it will also antagonize Egypt, but I suspect Ethiopia is putting a lot of resources behind this and wants to succeed. Technically it can succeed because it has never been done before, but geographically and commercially it makes sense.”

--With assistance from Mohammed Omar Ahmed.

(Updates with Ethiopia in paragraph three)

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