In a historic move last month, Israel and the United Arab Emirates (UAE) normalized relations, ending decades of in the shadows security and trade ties.

What Happened: Now, the two countries can openly do business with each other and UAE citizens and enterprises can invest in Israel, scenarios that could, with time benefit the VanEck Vectors Israel ETF (ISRA)

Israel has long been home to a vibrant, tech-driven, venture capital-intensive economy, but due to long-standing geopolitical tensions, it's often had to go it alone on a regional basis. Opening the relationship with UAE is undoubtedly a step in the right direction and a possible catalyst for ISRA.

Why It's Important: “Furthermore, we believe there will be significant impact in bilateral trade, direct investment in infrastructure, cooperation in science, agriculture, water, energy and tourism,” writes MV Index Solutions CEO Steve Schoenfeld in a recent note. “Communications and financial transactions are also expected to be easier now that the UAE has opened its phone lines to Israel, stopped blocking access to Israeli websites, and established SWIFT connectivity for direct payments.”

ISRA, which recently turned 7 years old and follows the BlueStar Israel Global Index, holds 144 stocks. Reflecting Israel's tech-rich economy, that sector accounts for over 47% of ISRA's roster. That's relevant because normalizing relations with regional peers can boost Israeli tech exports in the future.

“Early-stage Israeli firms, as well venture capital and private equity funds focused on Israeli tech will surely be major beneficiaries in our view,” notes Schoenfeld. “ISRA includes meaningful exposure to the most dynamic parts of Israel’s innovation ecosystem.”

ISRA's tech exposure is meaningful. The fund is topping the MSCI EAFE Index by 560 basis points this year

What's Next: ISRA's deep tech bench is meaningful for another reason. Israel is rumored to have, for years on the “down low,” had working technology relationships with other countries in the region, including UAE. Now, those partnerships can come to light, perhaps facilitating more opportunities for ISRA tech components.

Bahrain, Oman and Saudi Arabia are among the Arab states that could, taking a cue from UAE, seek closer economic ties with Israel.

“And while the initial deals are likely to focus on direct investment in infrastructure and joint ventures in AgriTech and biotech, we believe the biggest potential windfall will be the flow of investment into Israel’s capital markets, a positive shift that may reverberate for years to come,” according to Schoenfeld.