We at Afkār are delighted to announce that we have reached a new milestone, our 100th post! To mark the occasion, we have recorded and transcribed a special interview with the Director of the Middle East Council on Global Affairs, Tarik M. Yousef. The in-depth interview was conducted by our editor, Omar H. Rahman, and examines regional trends in the wake of October 7. Yousef, an economist, offers insights on the direct and indirect economic impacts of the war, the broader societal and political implications, and the emergence and reinforcement of a split in the Arab world between the Gulf and everyone else. The interview has been edited for length and clarity.
Omar H. Rahman: One of the lesser addressed aspects of the current crisis is the economic impact on the region. As an economist, what can you tell us about how the region is experiencing this moment in economic terms?
Tarik M. Yousef: Everyone assumes that the current geopolitical crisis, the war on Gaza, has had a big economic impact. And it probably has. We are not observing all of it partly because of the lack of transparency when it comes to government policy and economic outcomes—everything in this region is observed with a lag, not just this crisis. But there is every reason for us to assume that economic sentiment in the region has turned negative across the board, especially in countries closest to the areas affected by the turbulence—think Jordan, Egypt, Lebanon—and probably to a lesser degree as you travel further afield. So far, the direct economic effects have largely been confined to Gaza, Palestine, Israel of course, and the immediate surroundings. There is also concern if you are in a country where escalation can happen—think Iran, Iraq, Lebanon and Yemen. In the further outlying areas, like Morocco and Saudi Arabia, there is hardly any discernible effect. So, bottom-line, it’s a mixed bag. Some countries have certainly been affected, while some others are proceeding with business as usual.
But that is not necessarily how we want to talk about the economic impact, because we are going to find out down the line how much of a cost to income, to investment, to poverty, to human development, has taken place during the past seven months and in the near term. For example, it’s hard to imagine the outside world and external actors—especially investors, businesses and economic partners—not taking into account the propensity for conflict of heightened proportions in the region moving ahead. So, the economic effect is going to transpire and accumulate over time as the outlook for the region changes where people attach a higher premium of risk to anything they do. Investment inflows will take a hit, the cost of debt will rise, and many governments become cash strapped.
Yet the big question about this crisis is what it does to the overall context for policy, for coordination, for cooperation in the region moving forward. Keep in mind, this is a region that over the past decade suffered a lot of fragmentation, the emergence of rivalries, and geopolitical competition, and it did cost the region a lot in what was already limited regional economic integration. To the extent that this crisis has now brought back the Palestinian issue to the fore and is going to force it on how countries look and think about the future and engage with others, it could potentially have a bigger effect on the regional order or lack thereof, and the priorities of countries in the region in how they engage with external powers.
OR: How about the impact on existing longer-term trends, economic and otherwise?
TY: This crisis comes on the heels of a decade that was challenging for most economies especially the middle-income and low-income countries in the region. Think of the Arab Spring and the economic costs from the instability, the collapse in oil prices afterward, the difficult period of geopolitical competition and civil wars, weakened economic integration, and the collapse of official aid flows. Then you had the Covid-19 pandemic putting the icing on the cake.
During this period, we saw the emergence of a widening divergence between the Gulf and the rest of the region. I would say the last decade reinforced and crystallized that in more ways than any previous period. And it became hard not to look at the Gulf as being the economic leaders of the region, setting the tone and dictating the pace of regional activity economically. But also going it alone in many ways and thinking about the world and investing more outside of the region, and increasingly privileging their own economic national interests at the expense of the others. So, in economic outcomes, technological readiness, progress on social and economic outcomes, you name it, the Gulf countries in the past decade have parted ways with the rest of the region so much so that we can now really speak about two Arab worlds: the Gulf and everyone else. And everyone else right now is also a mixed bag. You have some countries that are getting by and countries that are in a state of continued fragility and instability, like Libya, Syria, Yemen, and Sudan.
This is where it is interesting to think about the impact of the current war on Gaza on existing trends. Will the region find a new spirit of cooperation? Will countries start revisiting historical commitments to regional integration, or will it reinforce the trends that emerged more recently? And I am afraid we could see it going both ways, with the Gulf countries thinking to themselves ‘this region, on the one hand, is costing us. Our outlook is colored by what happens in this neighborhood. The economic burdens of everything that is happening in Gaza and the impact on some of our allies and proxies is huge. We have other priorities. We are part of a global arena. We aspire to be middle powers. So, we are going to double down and compartmentalize the problem of Palestine, isolate it, do the minimum, and go it alone.’
On the other hand, you could also see leaders realizing that ‘this is a problem we assumed we could ignore, and it has come back to bite us again. We now must find a way of resolving it and mitigating its negative effects. If it means working together—again, for very selfish economic and national security interests—we will do so.’ It is not clear to me yet what happens. But other than Palestine it is hard for me to see how the two-region story is going to change much on account of what is happening right now in Gaza. I think it is going to reinforce the divergence that emerged previously.
With everything else in the world and the issues that these countries are thinking about, whether it is competition in emerging economies, geopolitical hedging, or positioning themselves for a new global arena, a lot of countries in the region will be left behind and the two-Arab World story will increasingly become the dominant framing of the dynamics and outlooks and policy discussions. And you can see that Saudi Arabia and the UAE are in a completely different position from, let’s say, Egypt, Algeria, Iraq, and others who are still struggling, left behind, and losing ground. The only country I can say that is an exception to this outside of the Gulf is Morocco, which is a result of its geographic isolation, long-term stability, and reasonably strong institutions. But even Morocco’s future outlook is a question mark given emerging geopolitical tensions in their neighborhood.
OR: This concept of two diverging Arab worlds is quite fascinating, especially in its implications. But can the Gulf really escape or insulate itself from the rest of the region? If these two Arab worlds diverge too much, could there be a far more revolutionary or paradigmatic change somewhere on the horizon? Perhaps a major realignment?
TY: What I am describing are trends. But you rightly suggest that they could be challenged or undermined or maybe even reversed by what’s happening in the non-Gulf region.
By the way, we haven’t said anything about Iran and the future of relations with Iran and what happens if Iran becomes more isolated—not to mention what could happen under a new U.S. administration. Iran is not just going to stand still and go down without dragging others with it. That seems to be one of the lessons of the past 15 years: You cannot ignore Iran. You have to find a way of managing the relationship and mitigating the risks from it.
A central question is whether the two-Arab World story can persist absent regional stability and a functioning regional order. The post-October 7 realization is that you can’t ignore Palestine, you can’t pretend the issue will just die away and the Palestinians will have to accept whatever is done to them. Eventually, you are reminded of the consequences of that. For the Gulf, the political and economic consequences can be significant if the rest of the region drags them down.
So that will be the counterargument to the idea that the two-Arab World outcome is an option that can prevail indefinitely without some sort of accommodation and regional order that emerges. Since October 7, we saw the UAE pour a lot of money into Egypt. Yes, it was a major investment, but it was also partly a rescue package for the Egyptian government. We know that Jordan is not characterized right now by a sense of confidence and a positive outlook about the future. Things could very quickly unravel or deteriorate for reasons that have to do with October 7 and what’s happening in Palestine. The same goes for Lebanon.
Let’s also take into account Iran’s recent actions vis-a-vis Israel. They demonstrated a military capability, from a regional perspective, that was stunning even if it was mostly for show and did not change anything on the ground. And it is not lost on anyone that the massive defensive response coordinated by the West was done for Israel, not for Saudi Arabia or the UAE or anyone else. That again is a reminder that the regional order predicament, the imperative of it, will continue to cast a large shadow over any idea of resilient, stable economic outcomes where you have prosperity, stability, and investment flows.
OR: We have discussed some of the state-centered economic and political trends. But how is the region internalizing what is happening in Gaza and beyond at the societal level?
TY: In this region, repercussions crystalize with a lag. People who are looking for immediate, instantaneous outcomes are always frustrated. And that gives way for a lot of assumptions about apathy, indifference, and disillusionment—and there is probably some of it. But what an event like the war on Gaza does, like the invasion of Iraq did, like systematic abuses of power and autocratic practices and political repression do, is they build a reservoir of grievances over time that becomes susceptible to exploding, given the right circumstances. I would say that would be the biggest lesson from the Arab Spring, which highlighted the unpredictability of public reactions to what happens as a result of the accumulation of things.
What is happening now is almost taking me back to the post-invasion of Iraq, pre-Arab Spring moment where regime stability was a foregone conclusion in the minds of most people. The longevity, stability, and durability of most of these autocratic regimes were not just widely assumed, but taken for granted. Yet, the buildup of these domestic grievances—economic, political, human rights, and civil liberties, coupled with an accumulation of grievances on regional issues—triggered the Arab Spring. That is not something we can remove from the table or completely exclude or say it will not happen because people are beaten down and tired and disillusioned. If anything, what Gaza has probably done is laid a lot of seeds of radicalization and latent activism. It could explode and when it does it will be very unpredictable, very destabilizing, and possibly violent. That will be one of the long-term legacies of the war on Gaza: destabilizing the region through this channel of grievances, anger, outrage and hopelessness in the minds of a lot of people.
Another thing is the heightened awareness of people in the region of the Palestinian issue, and the frustration with how little is being done by Arab countries to protect civilians and to force a ceasefire. In fact, people are seeing the opposite. They are seeing what appears to be collaboration between some regional actors and Israel to prolong the war or to ensure that Hamas is destroyed as one outcome. There is a newly found awareness regarding the Palestinian question, and the narrative of Palestinian resistance and sacrifice has returned with a vengeance. There is a new consciousness among a generation that was assumed to have forgotten about the problem because the intifadas and the old struggle and resistance took place generations ago. So you have an Arab street, especially a younger generation, that is politically—I wouldn’t say mobilized, but—awakened. That coupled with everything else that is happening adds to the sense of anxiety amongst regimes, creates potential triggers for unrest, and affects how people view themselves, view the region, but also view their relationship with the outside world.
So what October 7 has done, especially the post-October 7 conduct of Israel, is rearranged perspectives and prisms and understandings for a lot of people of one’s self, societies, regimes and the world. In that sense, it is creating a new regional order in the intellectual political sense—a new prism and a new way for people to view themselves and the outside world. And that is probably the most consequential impact long term.
OR: Yes, given how much the Arab-Israeli conflict of 50-75 years ago shaped the region, the younger generations that didn’t experience that must be asking themselves why the region is responding to October 7 in such a dissatisfying way, and that could lead to the fashioning of new political identities, and political perspectives oriented around these dynamics. Would you say that is correct?
TY: How these dynamics influence is not something we can obviously predict or dictate. The point is in 2011 when the Arab Spring protests erupted, nobody saw them coming. But everyone understood why they happened when they actually erupted. That is the sense in which I think we are laying the seeds of future upheaval and unrest as people in the region start internalizing everything they’ve observed. Because, just a few years ago, think of the message a lot of Arabs were being told, and the message that was sold to generations of young people: ‘hey it’s about making money, your education, and getting a job. It’s about social media and prosperity and stability and autocracy and not worrying about anything because we’ll take care of it.’ I would say that façade has come down and that fallacy is easily and readily observed by everyone that turns to Tik Tok and Facebook and follows what’s happening in the media.
This is big. In my lifetime I can’t think of a single stretch of geopolitical instability that has had this kind of earth-shaking, fundamentally undermining, and mindset-reorienting impact than what we are seeing today. And I lived through the ‘80s and ‘90s.
OR: Looking forward, is there anything you are observing that makes you optimistic?
TY: In the immediate term, I see little reason to be optimistic. I see the two-Arab World story being the predominant trend that will characterize the region. But, again, the future of regional security will have an impact on this. There are a lot of questions to be raised there. Countries like Egypt and Jordan, for example, can rely less and less on affordable external debt and financial support from the Gulf. Oil exporters like Algeria, Libya and Iraq cannot maintain the status quo on the back of hydrocarbon revenues without risking falling behind others even further. Countries in conflict zones are facing the worst prospects. Everyone is now a sort of hostage to circumstances that are changing not in their favor. Economically, the age of globalization is looking more and more like its being replaced by new geo-economic competition and the formation of new geopolitical alliances. Many countries have very high debt burdens. Energy transitions are underway. They face environmental challenges, they are underperforming on a lot of metrics, such as human development, growth, you name it.
Could this force reforms on regimes that are inherently insecure and autocratic and oppressive? I like to hope that will be the case. But it may not happen. As we observed in the lead up to the Arab Spring, we saw regimes hunker down and assume that they can manage and postpone reforms and get by with minimal improvements to outcomes—and I think we ultimately saw the result.
The Gulf countries, I think, will be able to withstand a lot more pressures than elsewhere, partly because their economic fundamentals are more robust. These are societies that are largely at peace with themselves and at peace with the regimes that govern them. They don’t face the same sort of challenges, at least not yet. And their relative economic prosperity will mean that there is enough for everyone to benefit and feel that the system serves them. But they will not be immune to what happens elsewhere, especially what happens in Iran, Iraq and Yemen—their immediate neighborhood. Those are the questions that will ultimately decide whether their own perceived durability, stability and prosperity will be undermined over time. Who knows what will happen in the global arena and its impact on them, should this global energy transition accelerate and undermine their own fiscal base and revenues. Will the world become less hospitable to the kind of flows of money that they bring to the table and are dispersing around the world?
But what I don’t think will change, however, is my sense of pessimism with the outside world’s interests in the region. Aside from protecting energy supplies, I think the prism for most countries will largely be driven by security considerations, minimizing the flows of migrants from the region and any unrest within the pockets of migrant communities. Trying to enlist regional actors to help protect their borders. There is no interest on the part of Europe, for example, to deepen any kind of economic integration with our region or extend greater resources to support economic development. That is not on the table, and that will continue to be the case.
So, it is a region that will have to kind of fend for itself mostly, and rely on its own resources and countries will be differentiated by what they have available and how far they can go. That would be the picture I see governing regional affairs or the regional outlook in the medium term, unfortunately. I wish I had a clear framework for thinking about the long term. I don’t. I am predominately preoccupied with thinking about the next 3-4 years.
