Mideast Peace, Israel, and the Arab Economic Context

Fellow Government in the Lab contributor Michael Omer-Man, an American writer based out of Jaffa, Israel, wrote an excellent analysis of US President Barack Obama’s latest Middle East policy speech. As Omer-Man points out, all sides are “over-reacting” to Obama’s assertion that the 1967 borders should be the basis for a final settlement. The Middle East Quartet, for instance, has already expressed “strong support” for Obama’s remarks, for his remarks were consistent with decades of American policy, and the policies of most other aspirant brokers. Netanyahu’s reaction has been overplayed in the media, and was likely nothing more than an attempt to show off to his fragile and hawkish domestic coalition while riling up Israel’s friends in the American political sphere. Netanyahu was certainly not surprised by the content of Obama’s remarks, since they reflected a known US position. What’s more, Obama’s refusal to extend support to the Palestinian statehood bid–which he referred to as “symbolic actions to isolate Israel”–would have gone over quite well in Tel Aviv, as would his line about “efforts to delegitimize Israel,” which might as well have been penned by Avigdor Lieberman himself (well, in a good mood). The media storm will blow over quickly, and the diplomatic storm was likely more of a drizzle.

Omer-Man presents a cogent discussion of the notion that there is a “linkage” between the status of Israel and other Middle Eastern problems. The existence of such a linkage would be very inconvenient for Israel’s American defenders–and its nonexistence would be equally inconvenient for Israel’s American opponents. Omer-Man also identifies a positive linkage, that the current wave of popular revolts for self determination could encourage a similar spirit between Tel Aviv and Ramallah.

Another potential linkage exists between the speech’s proposal for increased inter-Arab trade and the prospect of peace between the Arab states and Israel. Israel is the region’s only stable, well-rounded economy, and integration of the Israeli market into the Arab context via mutual peace deals with neighbors would be good for both sides. Without Israel, Obama’s inter-Arab trade idea makes little sense. Something like 6% of trade by Arab states is inter-Arab (compared to well north of 60%, I think 80% in the EU‘s dynamic internal markets). The oil states have little to trade with one another; the others produce little and produce it inefficiently, making trade unattractive. The Arab world also has universally low investment in research and development, while the Israelis lead the world in R&D spending as a percentage of GDP. As Obama noted, non-oil exports are quite unimpressive:

If you take out oil exports, this entire region of over 400 million people exports roughly the same amount as Switzerland.

The downside of Israeli market integration would be the huge hit that competitive goods would have on the region’s bloated import substitution industry. Palestinians, for instance, are known to quietly prefer “cheaper, higher-quality” Israeli goods to those that come from (allegedly) friendlier neighboring states. It is possible that the fear of Israeli market dominance is just one of the many reasons that the Arab states have held out on a settlement for so long–it would force them to confront their economic deficiencies. The “Arab Street” might see piles of cheap goods, yet have nobody with an income to spend on them.

The Arab world might have some challenges if a peace with Israel yields economic integration. (Image: Global Feminist Blog)

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1 Comment

Filed under Arab World, Israel, The West

One response to “Mideast Peace, Israel, and the Arab Economic Context

  1. Pingback: Live Blog: Israeli PM Netanyahu Addresses the U.S. Congress | John Allen Gay's Middle East Blog

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