Wednesday, November 07, 2007

Black money

Petrodollars changing Middle East, but Israel left out of the picture After the annual convention of the International Monetary Fund in Washington ended and everyone went back home, the Fund’s research department published its yearly review of the region known as “Middle East and Central Asia,” which includes, among others, all oil-exporting Arab-Muslim countries: Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria, and the Persian Gulf Emirates. It’s a fascinating report – and for Israeli eyes, also a scary one.

The main findings are as follows: Oil-exporting Mideastern countries earned roughly $600 billion from oil and gas exports. In the years 2003-2006, the export revenues of these countries totaled about $2,100 billion.

This year, export revenues of Middle Eastern oil-rich nations will reach another $700 billion; should the price of oil reach $100 dollars a barrel, the revenues will leap forth to $850 billion. Next year, in 2008, the Arab-Muslim Mideast’s oil revenues will cross the $1,000 billion mark. We should remember this number: One thousand billion dollar revenues from oil and gas exports in one year.

Israel’s GDP, that is, the total value of all the products and services produced in Israel, will total roughly $170 billion this year. Or in other words, the Muslim-Arab world’s oil export revenues are at least six times higher than all of Israel’s domestic production.

Which country makes the most money? Saudi Arabia gets about $250 billion a year, the Gulf Emirates get about $180 billion a year, and in third place we have Iran, with revenues of $100 billion a year.

During the six good years, 2003-2008, the 11 Arab-Muslim oil-exporting countries will receive roughly $4,000 billion in exchange for their exports to the energy-hungry world. It’s an imaginary sum; incomprehensible.

Oil money revolutionizing Mideast
What do they do with the money? First of all, they buy. About 60 percent of the income from oil and gas exports is used to finance various types of imports. Last year, imports to oil-exporting countries totaled $360 billion, and this year it could reach $500 billion. By next year the figure could climb to $600 billion, although it’s difficult to see what the rulers of Kuwait, Saudi Arabia, Qatar and Libya can spend such huge sums on.

The other 40 percent of oil exporting revenues are saved and are accumulated into governmental and government-like foreign currency reserves. According to the calculations of the IMF, by the end of the year these reserves will reach $1,200 dollars (including about $800 billion official reserves.) By next year the sum is expected to reach $1,600 billion.

In order to disguise their wealth, several Mideastern countries (Saudi Arabia, Qatar, Libya and Iran) deposit their oil money in investment funds owned and monitored by the regime. These are seemingly not considered “reserves” based on the IMF’s definition.

What is the expensive oil doing to the Mideastern economy? Its change its face completely. Since the oil prices revolution started, the per capita product there has been doubled, Arab governments paid off all their debts, the stock markets skyrocketed, poverty was cut down by a quarter, life expectancy rose by at least six years, accessibility to water and electricity has reached 90% of the population, and the natural growth rate has declined by the “most impressive rate in the world.”

And here is yet another important aspect: Iran’s development. According to the IMF, since 2002 the Iranian economy has been growing by an average annual rate of 5.5 percent. As a result, Iran’s GDP rose from $120 billion in 2002 to $280 billion this year, and is expected to rise to $330 billion by next year.

Peace with Palestinians key Israeli interest
It’s hard to exaggerate the implication of such figures. They shape a new Middle East, but not the kind of Mideast President Shimon Peres dreamed of. Arab and Muslim oil exporters no longer need Israel’s assistance in order to integrate into the global world. The world is knocking at their doors. The approved investment plans of the Emirates alone are estimated at $800 billion for the next five years.

And we are not there.

A two-hour flight away from Tel Aviv, on the sands of the desert, we are seeing the emergence of an oil- and gas-based Arab-Muslim economic empire never before seen in this region. Its power will grow from one year to the next. It will be a major player in deciding the fate of the global economy.

Yet all of this is happening without us. The Arab economic prosperity, which is so close to our borders, is completely skipping us. It is still not being directed at us. The Arabs have not yet internalized their power and wealth. It came too quickly and too easily. Yet they will internalize it, grasp it, and start conducting themselves accordingly.

For Israel, this is the last chance to “get on the bandwagon” and join this new reality. We must change our national perception: Israel’s economy, with all its technological achievements, will continue to dwarf in the face of the accumulated wealth of the Arab-Muslim Mideast. Our economy will decline to a much greater extent if we do not have any access to this wealth.

Such access can only be facilitated by signing an Israeli-Palestinian agreement to end the conflict. The most blatant Israeli existential interest is to advance the signing of such agreement, and through it normalize our ties with wealthy oil exporters – we can then start trading with them, selling to them, and taking part in their development plans.

The opening of Mideastern markets to Israel could double the annual growth rate of our economy from 5 to 10 percent. The Arab wealth would also enable an economic-financial resolution of the Palestinian refugee problem, once such agreement is reached by all parties. This will require no more than a donation of 5% of the foreign currency reserves of oil-exporting countries or of their annual export revenues. There would still be money left, via wise business investment, to turn the future Palestinian state into a growing region.

Those who prefer to keep dozens of West Bank settlements over the opening of Israeli embassies in Riyadh and Qatar and over opening the Saudi and Libyan market to Israeli exports are anti-Zionist in my view. They understand nothing when it comes to the new Mideastern balance of power. They will leave Israel deep in the shadow, and in practice jeopardizes the foundations of our existence.

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