Trump plan for Palestine could deal blow to Israel’s economy

Israeli Prime Minister Benjamin Netanyahu and Cabinet Secretary Tzahi Braverman present an investment chart during a weekly cabinet meeting in Jerusalem [Abir Sultan/Reuters]

Ben Piven

Al-Jazeera  /  January 29, 2020

US ‘peace to prosperity’ proposal could stoke conflict in Middle East, with annexation likely to have negative effects.

As United States President Donald Trump and Israeli Prime Minister Benjamin Netanyahu appeared jointly on Tuesday to endorse the new US political framework for peace in the Middle East, analysts rushed to count the cost of imminent changes on the ground.

The latest details of the Trump administration’s long-awaited plan were released as the second part of a one-two punch, with the first – the economic component – having been announced with great fanfare by White House senior adviser Jared Kushner last June in Bahrain.

But analysts say the slick presentations and hard sells could deliver the opposite of the deal’s promised prosperity – and not just to the Palestinians. The economic future of Israel could also suffer, they argue.

“As the Trump plan does not seem to generate negotiations – but [to] potentially enhance the political conflict between the Palestinians and Israel, as well as between Israel and Jordan – there is no reason to think that it will have an economic positive impact [for Israel] in the short run,” said Zvi Eckstein, dean of the Tiomkin School of Economics at IDC Herzliya.

“The long term depends on the overall reduction of potential and actual conflicts, which does not seem to be an immediate outcome or even medium-run result,” he told Al Jazeera.

Uncertain horizon

Netanyahu hopes to achieve a domestic political windfall from Trump-sanctioned annexation of land recognised as Palestinian by international law, in addition to regional peace dividends potentially unlocked.

But if a security crisis emerges as a result of inflamed tensions, it could put a damper on any such benefits.

Israel’s internal political deadlock, which has seen the country move towards its third election in less than a year, has stalled passage of a new 2020 government budget.

And pending the next national vote on March 3, Netanyahu has been formally indicted by an Israeli court for corruption on charges of bribery, fraud and breach of trust.

Netanyahu’s finance minister, Moshe Kahlon, is one of the few Israeli officials with a record of consistent engagement with his Palestinian counterpart. But he announced this month that he will not seek re-election.

Credit agencies began raising doubts in September about whether political uncertainty poses a major risk to Israel’s credit profile, as Moody’s said the ongoing failure to form a government was becoming perilous.

While Israel’s economy did expand by 3.3 percent in 2019, it was the lowest annual growth rate since 2015.

“Gross domestic product per capita is not growing above the average for OECD [Organisation for Economic Co-operation and Development] countries,” Eckstein said, referring to the two-percent population growth that helps boost the labour force but also raises demand.

Costs of ‘annexation’

Critics of the Trump concept for Israeli-Palestinian peace argue that the outline is one-sided, representing a way for Netanyahu to proceed with the absorption of settlements in the occupied West Bank.

“Certainly, if Israel is allowed to annex our natural resources, tourism, archaeology, etcetera, this would be good for them, at least initially,” said Saeb Erekat, secretary-general of the Palestine Liberation Organization.

“The question is whether this is sustainable,” Erekat told Al Jazeera. “Any economy needs a political system to sustain it. Netanyahu enjoys promoting dates, wines and cosmetics from settlements, but one day there will be consequences for such actions.”

“This annexation plan is not going to fly,” he added.

Though the term “annexation” does not appear in the text of the initiative, it describes a series of incentives “to transform and improve the lives of the Palestinians and the people of the region by unleashing economic growth”.

J Street, the Jewish-American political group that bills itself as “pro-Israel, pro-peace” said in a statement that the proposal by Trump is a “peace sham”.

“Coming in the midst of an Israeli election campaign, this is an attempt to hand the prime minister a political gift and a distraction from the very serious charges he is facing,” J Street said, criticising US empowerment of Israel to seize disputed territory.

Israel Policy Forum (IPF), a US-based organisation advocating for a “Jewish, democratic and secure Israel” maintains an Annexation Watch feature on its website detailing the ramifications of whole or partial West Bank territorial incorporation.

“Annexation threatens to impose serious security, economic, institutional, and political problems on Israel,” says an IPF policy document, adding that dissolution of the Palestinian National Authority could bring nearly three million Palestinians “into the Israeli social services system” and lead to “a severe budgetary strain for the state”.

Such a scenario assumes the collapse of what remains from the 1993 Oslo peace accords. But Netanyahu has been quick to highlight opportunities available to Israel further afield, despite a lack of rapport with the Palestinians.

Regional dividends

One of the biggest advantages of the new proposal, its backers argue, is the opportunity for Israel and Palestine to develop deeper regional economic ties.

The deal envisages a proliferation of trade links between Israel and its neighbours, as well as Gulf Cooperation Council nations.

“The countries in the region can become a global hub for the movement of goods and services from Asia to Africa and Europe,” says the plan.

Israel has over the last decade increased its geopolitical importance to energy markets by developing offshore natural gas fields in the Eastern Mediterranean.

Egypt and Jordan both began importing gas from Israeli fields earlier this month, although the latter arrangement has met with sharp political resistance in Amman.

Erekat says that despite deepening energy ties for Israel in the region, there is no bypassing Palestinian interests with a US deal that the Palestinians had no hand in drafting.

“Israel could try to go around us, but it is not just that it is not going to succeed,” said Erekat. “The first good deal Israel should be concerned to sign is one that sets the basis for future coexistence through fully ending the Israeli occupation that began in 1967.”

Ben Piven reports on global economics and geopolitics for AJ-Impact, the new business and finance vertical at Al-Jazeera Digital; he often writes about international trade, climate change and urban policy