Myth of Economic Peace in Middle East
As it turned out, that was the last peace agreement Israel ever signed with an Arab country. Moreover, relations with our two peace partners (Jordan and Egypt) aren’t characterized by any true amity but by common interests grounded in realpolitik. It’s a peace of politicians, generals and intelligence chiefs meeting mostly out of the public eye. There’s little trade, tourism, investment or business alliances – but maybe that’s for the best.
Over the last quarter century, Israel has enjoyed a sustained period of economic growth and we’re now among the world’s richest countries on a GDP per capita basis. The high-tech industry took off, foreign investment surged and we were admitted to the exclusive ranks of the OECD. Maybe one day natural gas exports to Egypt will give another boost to the economy, but the fact is economically speaking Israel not only doesn’t need the Arab world – it's better off without it.
Among the things Israel doesn't need
The latest report by the International Monetary Fund, released on Monday, shows why. The short-term outlook for the region is wretched. The Middle East in this report is defined widely, encompassing not only the usual suspects in North Africa and West Asia but Afghanistan and Pakistan, too. In this Middle East, gross domestic product is expected to grow much more slowly than the world average.
Unemployment across the region is 4% higher than in other emerging markets. Because of slow growth and inefficient government, the IMF says, debt in many countries has grown so much that there isn’t enough capital available for the private sector investment they need to get them out of their low-growth hole.
Even the silver lining of higher oil profits has faded, the IMF found. Oil is the one thing made in the Middle East that the world wants, but the Middle East’s lockhold on global supply is no longer what it once was: U.S. shale oil production has soared and tepid world economic growth has reduced demand. When the U.S. was gearing up to invade Iraq back in 2003, oil prices surged 60% in four months; when America imposed sanctions on Iran in 2018, they rose just 8% in two months.
The region’s economic distress has relit the flame of protest this year, most notably in Iraq and Lebanon. The IMF’s Reported Social Unrest Index, which tracks events in Algeria, Egypt, Jordan, Lebanon, Morocco, Sudan and Tunisia, is at its highest since 2014.
But even that brings no good news to the region. If the Middle East were just a little more democratic, it might be a good sign that the streets are alive with placards and chanting demonstrators. The politicians who failed the public would be forced out of office, or at least take a serious stab at reform to ensure they remain in power. But in the Middle East the elites are far too well entrenched for change to happen on those terms, as the 2011 Arab Spring amply demonstrated.
The IMF offers some perfectly good ideas for how to begin solving the region’s deep economic distress. But its long-term problems are more likely to get papered over with short-term solutions that don’t upset a firmly entrenched status quo. The economic visionaries of the region are few and far between (Saudi Arabia’s Prince Mohammad Bin Salman and Dubai’s Sheikh Rashid bin Saeed al Maktoum and successors are the only ones who come to mind) and even their vision is limited: It relies on oil dollars to finance it and resists political change.
None of this malaise concerns Israel, except politically. Civil war has raged in Syria for eight years with no impact on the Israeli economy, not even on investor sentiment. The millions of refugees that the war created fled anywhere they could – to Turkey, Lebanon, Jordan and Europe. Not to Israel, which bore none of that burden.
The collapse of the Lebanese economy, the gyrations in Egypt and Jordan’s struggles with refugees and stagnant growth could all be happening on another planet as far as Israel is concerned: indeed, as far as the IMF is concerned, too: Its report is entitled “Regional Economic Outlook: Middle East and Central Asia Update” and includes countries from Morocco in the west to Pakistan in the east but not Israel, even though we’re right smack in the middle.
Back in 1994, almost no one at the treaty-signing ceremony made mention of the economic dimension of peace, apart from a few references to turning the Arava green. Twenty five years later there are a few win-win economic ties, like Jordanians working in Eilat hotels and future Israeli gas exports to Jordan, but the two countries could otherwise be thousands of miles apart, economically speaking.
Stronger and deeper economic relations might have given something of boost to Israeli-Arab peace. Israeli business no doubt would have welcomed the new markets. But it would have created a big risk to Israel by driving us into the arms of a region where political upheaval and economic stagnation are the distressing norm. We should be glad it didn’t happen.
David Rosenberg