Israel: From lonely island to major Middle East hub

Signing of Abraham Agreements with UAE in Washington. credit: Tom Brenne, Reuters

The Abraham Accords have the potential to turn Israel into the economic gateway to the Middle East from Europe.

In normal times, geopolitical changes in the Middle East, specifically events like the peace agreement with the United Arab Emirates and the declaration of peace with Bahrain (the "Abraham Accords"), would have generated an endless stream of news headlines because of their momentous effect on the Middle East and the world order.

Israel and the United Arab Emirates have much in common, certainly in economic terms: similar gross national product of about $400 billion (prior to the Covid-19 pandemic); similar-sized populations, of about 9 million people; the Middle Eastern climate; desire for technological innovation and a hunger for entrepreneurship. All the projections foresee collaboration in a wide variety of fields.

However, while the Emirates accumulated their wealth from natural resources, Israel did so from human resources. Israel is known for its advanced technologies, which are in great demand all over the world, and certainly in the wealthy Arab world. The desert climate will engender quite a few collaborations in agri-tech, water-tech, and there exists a range of possibilities for commercial collaboration in agriculture and food.

Israel's drip irrigation technologies water fields all over the world, even in Iran. Water desalination technology, drones for mapping fields, and robots for harvesting low-height crops are just some of the products that will be in high demand in the huge Gulf states market.

The Israeli tourism industry will also benefit from the Abraham Accords. Hundreds of thousands of tourists are forecast to visit Israel. Israel abounds in places sacred to Islam; not just Jerusalem, but Nazareth, Acre, Haifa and other cities will benefit. Religious Islam, like Judaism, has dietary restrictions but "Halal Tourism", as it's called, won't encounter many difficulties in Israel, because Israel's Muslim population operates halal restaurants and sites suited to this population.

Economic boosts all over Israel

This economic boost will reach almost everywhere in the country -- even in the periphery. Ramon Airport in Israel's south is less than three hours by air from Abu Dhabi, and will serve as backup to our main gateway, Ben Gurion Airport, for those vacationers interested in a short flight to visit Eilat and the Dead Sea.

Railway and road infrastructure in Israel's north has continued to develop. The peace agreement and the ensuing commercial transport, via the Jezreel Valley railway, will turn the old Port of Haifa and the new Haifa Bayport container terminal (currently under construction), into the economic gateway of the Middle East. The Jezreel Valley Railway development project is supposed to connect the 60-kilometer railway - with Haifa on the western side and Beit She'an on its eastern side - to the Jordanian railway system on the east, and Haifa Port to the west.

Civil war and a perilous security situation has made it very difficult for Jordan to export and import to and from Europe through Syrian and Lebanese ports. In recent years, there has been an increase in Jordanian goods exiting from the city of Irbid in the north, and across the Jordan River, to Haifa and Ashdod.

The peace agreement will bring in the UAE, which may now also benefit from the Middle East's new Silk Road, to create pressure to accelerate this project, and even to fund it in cooperation with the European Union. The EU has already expressed interest in the project and confirmed its economic viability.

Changes to the oil pipeline map

The peace agreement also changes the oil and gas pipeline infrastructure map in the Middle East, and the oil market in particular. Geography and geo-politics combine to create Israel's potential as a major hub for oil from the Gulf states en route to Europe and Asia.

The way fuel transport is handled today causes many headaches for Arab countries, particularly the UAE, which is located in the southern part of the Strait of Hormuz. The northern part of the Strait is in Iran. Oil tankers sailing on the Strait are exposed to Iranian attacks, to pirates coming mainly from Somalia and Yemen towards the entrance to the Red Sea, and in addition, they have trouble at the entrance to the Suez Canal. Because the canal waters are shallow and the oil tankers cannot navigate them, companies are forced to transfer goods to smaller tankers. Thus the ultimate cost of passage through the canal can reach hundreds of thousands of dollars per tanker.

Israel can be an alternative to fuel transported via the Suez Canal, through the Europe Asia Pipeline Company Ltd. ("EAPC") and its legendary port-to-port Eilat to Ashkelon oil pipeline, which will transport oil directly from the Gulf states and Saudi Arabia, through Israel to Europe and Asia.

Thanks to Israel's strategic location as a link between the Red Sea and the Mediterranean - the actual land bridge between the Arab countries and the West - it is possible to lay a pipeline that would connect to an endpoint in Yanbu, Saudi Arabia. After that there would be two options: another pipeline connecting to the EAPC terminal in Eilat, or transporting fuel in tankers to Eilat.

All these countries have a common interest in saving costs and lowering risk for the Gulf states, while the State of Israel could benefit from income estimated in the hundreds of millions, and become the distribution center for Arab oil.

In the long term, the composition of one's investment portfolio should take into account the effects of these historic changes as, post Covid-19, the peace agreements between Israel and the United Arab Emirates will impact the economy significantly.

Companies that have suffered the most significant damage due to Covid-19 are also those which may benefit most from the peace agreements, post-coronavirus. The aviation, transportation, construction and infrastructure industries, tourism, etc., are likely to benefit substantially, and companies in those sectors should be part of one's investment portfolio as we look towards 2021.

Lior Vax, Acting Chief Executive Officer at Infinity Investment Group

The author is acting CEO of the Infinity Investment Group. This article is provided as general information only and should not be construed as a recommendation, offer or advice for the purchase or sale or holding of securities or financial assets or pension products, including those mentioned in the article. This article is not a substitute for personal advice that takes into account the factors and the individual needs of each person.

Published by Globes, Israel business news - en.globes.co.il - on December 7, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Signing of Abraham Agreements with UAE in Washington. credit: Tom Brenne, Reuters
Signing of Abraham Agreements with UAE in Washington. credit: Tom Brenne, Reuters
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