Israel’s Abraham Accords Dividend Is in Doubt
(Bloomberg Opinion) -- Last December, Israeli tourists brushed off their government’s warnings against traveling to the Gulf Arab states. The risk of being stalked by Iranian spies on the streets of the United Arab Emirates and Bahrain was no deterrence for Israelis seeking the novel experience of visiting countries that had until recently been out of bounds.
Their enthusiasm was a hopeful harbinger for businesses gearing up for the opportunities from the new tourist flows, ranging from airlines and travel agencies to a joint venture to supply Abu Dhabi’s hotels with kosher food.
Now, in the aftermath of the fourth Gaza war and communal violence between Jews and Arabs within Israel, those businesses may be in for an uncertain summer. More generally, the widespread anti-Israeli sentiment now spiking in the Gulf countries will test the depth and durability of the economic engagement promised by the signing of the Abraham Accords.
In addition to diplomatic normalization of relations between the signatories, the accords were meant to open floodgates of trade and investment flows. The early projections were exuberant: Israel’s finance ministry estimated the potential of bilateral trade with the UAE alone at $6.5 billion a year. In March, the UAE announced plans for a $10 billion fund to invest in and alongside Israel in “strategic sectors” in the Israeli economy, including manufacturing, energy and healthcare. There was also talk of joint ventures in other parts of the Middle East, where the UAE has substantial investments and Israel lags far behind. These ventures would be enabled by “people-to-people ties” — specifically, new relationships between Emirati and Israeli entrepreneurs and investors.
The early portends from tourism, a leading indicator of the economic impact of the accords, were very good. More than 50,000 Israelis flocked to Dubai over the New Year’s holiday, and Israel hoped to attract 100,000 tourists annually from the UAE. Etihad Airways, the Abu Dhabi airline, announced new flights to Tel Aviv. Just last month, Israel and the UAE started talks on a quarantine-free travel corridor for people who have been fully vaccinated against Covid-19.
But all that was before Israeli police stormed Jerusalem’s Al-Aqsa Mosque, one of Islam’s holiest sites, using stun grenades and rubber bullets against Palestinian protesters. In the Arab world, this and the communal violence that followed, roused widespread anger — which turned white-hot during the Gaza war.
Throughout, Israeli officials gamely kept up efforts to attract travelers from the Gulf, but it is hard to imagine Emiratis and Bahrainis matching the enthusiasm of Israeli tourists last winter. Arab anger, in turn, may prompt Israelis to rethink a trip to Dubai, Abu Dhabi or Manama. Since last week’s cease-fire in the Gaza war between Israel and Hamas, there has been fresh violence at the Al-Aqsa Mosque.
How trade and investment will be affected is harder to predict. Between September 2020 and March 2021, the flows were modest, and tended to go from the UAE to Israel more than the other way around. Israeli investments in Bahrain have been even slower to materialize, despite Manama’s political openness to Israel. And there is no evidence as yet of Bahraini investment into Israel.
Israeli capital investment in the UAE amounted to less than $25 million, in areas like healthcare, consulting, diamond trading and artificial intelligence. Emirati capital investment in Israel was more than three times as much, at about $80 million, but in just three placements — in artificial intelligence, a defense firm, and hospitality and transport.
The Emirati investments into Israel thus far have come from companies connected to state entities, such as Mubadala, the UAE sovereign wealth fund, and from private firms with consolidated ownership. This makes them resistant to pressure to disengage from Israel, as long as the UAE government continues to stand behind the accords.
But other private investors may be more vulnerable to the prevailing public mood. Powerful pro-Palestinian social-media campaigns represent a new kind of pressure on businesses. Given the strong anti-Israel sentiment across the Middle East, Emirati business will be circumspect about joint ventures. The decision by the Norway’s sovereign wealth fund to drop firms associated with Israeli settlements in the West Bank may make it awkward for investors from the Gulf, sovereign or private, hoping to capitalize on their own governments’ more accommodating positions.
To a substantial extent, the economic promise of the Abraham Accords is predicated on private enterprise, on business relationships developing from those people-to-people ties. The events of the past three weeks may have stalled progress on that important front.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karen E. Young is a senior fellow and director of the Program on Economics and Energy at the Middle East Institute.
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