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With Each of Its Arab Neighbors, Israel Has a Different ‘Economic Peace’

Sami Peretz
Sami Peretz
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גורדי שחקים באיחוד האמירויות
גורדי שחקים באיחוד האמירויותCredit: Satish Kumar Subramani/REUTERS
Sami Peretz
Sami Peretz

In January 2008, Benjamin Netanyahu, then head of the opposition, gave a speech at the annual Herzliya conference in which he unveiled one of the ideas most associated with him, “economic peace.” He proposed that in the absence of a political solution to the Palestinian problem, the focus should be on boosting the Palestinian economy and the standard of living of ordinary Palestinians.

Netanyahu admitted that prosperity was no substitute for statehood but he asserted that it would enable the two sides to eventually talk about Palestinian national aspirations under more promising conditions.

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Almost 13 years have passed and the events of this month – the agreement to normalize relations with the United Arab Emirates, Israel’s reversing its annexation plans and the latest round of incendiary balloons coming in from Gaza – have made this an excellent time to revisit the concept.

But before we begin weighing various ideas about what economic peace for the region means, we should first examine the “peace economy” – the institutions and businesses that benefit from peace agreements, first and foremost the U.S. defense industry. The paradox built into peace agreements is that they contain a military element that encourages an arms race.

Martin Indyk, the former U.S. ambassador to Israel, was quoted on this last week in the wake of reports that as part of the normalization deal, the United States will sell F-35 jets and drones to the UAE. U.S. President Donald Trump confirmed this, saying, “They have the money and they would like to order quite a few F-35s.”

Indyk asserts that the F-35s were part of the deal, just as there was a military component to the peace agreements with Egypt and Jordan. Egypt has been getting $2 billion annually in American military aid and Jordan got F-16s. And, of course, Israel gets $3.8 billion a year to buy U.S. military equipment.

It’s an essential element of the American peace economy – help in equal parts to its friends and to the U.S. defense industry. Israel doesn’t hesitate to market the generous aid it gets from Washington as benefitting American arms makers.

The economic peace that Netanyahu spoke about hasn’t yet materialized. Normalization allows us to examine the possibilities, divided into three categories from the easiest to the hardest.

The easiest of the three is the Israel-UAE agreement. The two countries share no border, but we do have common business interests and share security concerns vis a vis Iran. Commercial relations go back many years. There aren’t big obstacles to reaching a formal agreement.

There is no real conflict. Here economics does the talking. Israel has what to sell and the UAE has the buying power. Its rulers have leveraged their vast oil profits to develop economically and technologically at an impressive rate.

The second category involves the Palestinian Authority and the West Bank. Here, there’s never been real peace but there has been good security cooperation over the years. Now an interesting turn of events has occurred. Whatever he might say, Netanyahu has dropped annexation in favor of an agreement with the UAE.

But even if there had been no agreement, annexation in the midst of a giant economic crisis was fraught with danger. Israel would have run up against the opposition of the European Union and even risked a boycott. It would have made it more difficult for the 100,000 or so Palestinian laborers who cross into Israel daily to work, thereby striking a blow at the construction sector. A rise in Palestinian violence would have prevented the tourism industry from recovering and forced Israel to increase defense spending.

As long as Trump remains president of the United States, the annexation window remained open, but as the devil would have it, it was open against the backdrop of the greatest health and economic crisis in a century. It was no time to take chances.

These calculations relate in no small way to the differences between the West Bank and Gaza. Per capita gross domestic product in the West Bank is three times that of Gaza, so that the PA, not just Israel, has something to lose if the security situation deteriorates. The (relative) economic peace in the West Bank has given the PA something to lose, just as Israel has. Whatever economic peace dividend the two sides have reaped would have been endangered. Pulling back from annexation was as much in Israel’s interest as it was in the PA’s.

Gaza is the third category of economic peace – an end of incendiary balloons in exchange for Qatari dollars. Every time that Hamas finds itself in financial distress and needs money, it quite literally turns up the heat on the Israeli fields and farms adjacent to Gaza, as has been happening over the last two weeks. This has given Israel an unusual role, as the broker who arranges a new influx of Qatari cash. Its fee is a respite from the balloons until Hamas is in trouble again.

None of the wars since 2008 have solved the Gaza problem, so a sort of economic peace based on quiet in exchange for dollars has come to take its place. Unlike the PA, Hamas has nothing to lose from war, but it does have something to gain.

The economic peace with the UAE is the ideal, but the economic peace Israel has with the PA and Hamas has a direct impact on our security. Could the UAE economic peace have an impact on Gaza? The fact is Gaza is thousands of kilometers from the UAE geographically and socioeconomically.

But it may represent a small political jumpstart to a broad economic peace. The normalization deal shows not only that the Arab world is less interested in the Palestinians than in the past but also that the average Israeli isn’t so interested in annexation. There are bigger problems everyone faces and maybe that will open up opportunities.

Fires ignited in southern Israel by incendiary balloons sent from the Gaza Strip, August 2020. Credit: Ohad Zwigenberg

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