TRUMP PEACE: After one year Abraham Accords has brought booming trade between Israel and Arab neighbors

The paper we publish today shows what the future promise is of the Middle East. Where peace is in place, economies prosper. Where it isn’t, huge potential is being held back. This paper offers an overview of the long-term development of trade between Israel and Arab partners where a peace agreement is already in place: the Palestinian Authority, Jordan and Egypt. In the coming weeks, we will also publish our detailed analysis of these relationships.

What our research shows is that while Israel’s trade with Middle Eastern markets is already quite considerable, there is still significant, untapped potential for Israeli-Arab trade and economic cooperation. It also highlights how peace agreements have helped economic development—not only by opening up new trade routes but also because the sides enjoyed significant dividends from the agreements, as funds that would have gone on defence could be invested elsewhere. The peace agreements with Israel enabled Jordan and Egypt to access significant international aid, as well as preferential trade arrangements with the United States. The research offers a glimpse of what cooperation could mean for this region—in technology, culture and trade, as well as further prospects for economic development.

While Israel and the Palestinian Authority have close trading links, this research further highlights the growing dependence of the Palestinian economy on Israel in recent years. In 2016, Israel was the source of some 60 per cent of Palestinian recorded imports of goods and the destination of 85 per cent of Palestinian recorded exports of goods. If unrecorded trade is taken into consideration, Israel’s total share grows to two-thirds of imports of goods and more than 90 per cent of exports of goods. Moreover, the number of Palestinian labourers employed in Israel increased significantly from 40,000 in 2002 to 130,000 in 2016. To support a future independent and economically viable state, the Palestinian economy must be allowed to grow and develop beyond Israel.

Without a final status agreement with the Palestinians, Israel’s overall security-related costs will remain at a relatively high level of close to 15 per cent of GDP. Resolution of the Palestinian conflict could cut these costs, possibly by as much as half. The economic cost for the Palestinians of the continuing conflict with Israel is enormous—and we are now at the end of three lost decades of economic growth since the First Intifada.

It is, however, interesting to see beginnings of trade between Israel and Gulf countries. According to our analysis of figures, Israeli exports to the Gulf Cooperation Council (GCC) bloc is around $1 billion. All Israeli exports to the GCC market are currently indirect, through third countries; sometimes channelled through Jordan or Turkey, but mostly via European and other non-MENA countries. Trade is growing, but to truly tap into the major potential of these markets, we will need a regional approach to the peace process, one that puts the Palestinian issue on a path to resolution. There is enormous potential if political constraints on exports to the much larger GCC and other main Arab markets can be removed.

This region is undergoing huge transition, where the ultimate goal should be open, rule-based economies and religious tolerance. Within this wider regional context, Israel’s capabilities and economic strengths should allow it to play a much more central role in regional economic cooperation. If political barriers can be removed, Israel’s contribution to the Middle East would be of critical importance, providing viable solutions to some of the overwhelming challenges of the region, including in the areas of water, energy and sustainable industrial development.