Analysis
‘Warmer’ peace with Israel offers Jordan better economic dividends
January 24, 2022
For the first time in seven years, the Jordanian royal court recently released a photo of King Abdullah II meeting with an Israeli official, Defense Minister Benny Gantz, Jan. 5 in Amman. This gesture is a clear indication that relations between the two neighboring countries are warming up again. After a decade of sluggish growth and falling standards of living, Jordan likely wants to capture a bigger share of the growing pie of Arab economic cooperation with Israel.
U.S. legislators from both parties recently launched a bipartisan House-Senate caucus that would be a “cheerleading squad” for the Abraham Accords, signed last year between Israel and the United Arab Emirates (UAE) and Bahrain.
In the first year of peace between Israel and the UAE, bilateral trade reached $700 million. In 2020, bilateral trade between Israel and Jordan stood at $250 million, 27 years after they had signed a peace treaty. These numbers suggest that Jordan has much to gain by moving beyond the “cold peace” it has with Israel and embracing the accords.
In December, Israel and Jordan signed an agreement to facilitate Jordanian exports to the West Bank. The deal’s ambitious goal is to increase the total from $150 million to $700 million a year. In July, Israel agreed to increase its annual supply of fresh water to its eastern neighbor by 50 million cubic meters, doubling the previous figure. The UAE brokered a deal in which Jordan produces solar energy for the Israeli market, and Israel reciprocates by desalinating Mediterranean water for supply to Jordan.
Israel’s peace with Jordan remains colder than expected because some Jordanians see the agreement as a political necessity rather than a true opportunity. They argue that relations with Israel should remain a purely government-to-government affair, rather than a bond between two peoples. Some even argue that while peace is net positive for the Israeli economy, it is a net negative for Arab economies.
The data say otherwise. One “fruit of peace” with Israel, according to the Tony Blair Institute, “was the start of a process that led to a series of international trade agreements and placed Jordan on a path of accelerated, export-driven economic growth.”
The institute observed that during “the 2000s the Jordanian economy grew at an average real rate of 6 percent a year. Jordanian exports of goods increased fourfold, from $2 billion in 2000 to $8 billion in 2008. Jordan’s gross domestic product (GDP) per capita more than doubled, and unemployment declined from 15 to 12 percent, despite an annual 5 percent growth in the Jordanian workforce.”
Because of its political stability and economic growth, Jordan attracted Iraqi immigrants, followed by waves of Syrian and Iraqi refugees starting in 2011. The population of Jordan has thus doubled over the past decade, putting pressure on the economy. The wars in Iraq and Syria have also interrupted regional trade and tourism, a further drag on the Jordanian economy. Over the past decade, the economy has grown by only a bit more than 2 percent per year, while per capita GDP has fallen significantly.
The road ahead for Jordan will be difficult, but the Abraham Accords offer Amman the opportunity to collect more dividends of peace. The bigger the volume of trade in goods and services between Israel and Arab countries, the bigger the regional economic pie and the bigger share Jordan can capture for its own economy.
One positive sign is that Israeli tourism in Jordan is on the rise as more Israelis choose to vacation in Aqaba — a Jordanian resort town on the Red Sea — over Israel’s Eilat. And since Egypt’s Sinai Peninsula — once a popular escape for Israeli vacationers — has become riskier due to a surge of Islamist terrorism, Jordan has become the best alternative.
Leaders in Egypt, until recently the only other Arab country with a peace treaty with Israel, have recognized the opportunity to forge deeper economic ties and have been trying to turn their country’s “cold peace” with Israel into a warmer one.
In September, Abdul-Fattah al-Sissi became the first Egyptian president to openly meet with an Israeli prime minister in a decade. In October, Egyptian airlines announced that it will fly its trips to and from Israel under its own name, 39 years after flying under the guise of the non-existent airliner Sinai Air. In November, Israeli generals visited Sinai for a rare public meeting with their Egyptian counterparts.
When Arab countries launched their boycott of Israel in 1948, they reasoned that such policy would result in Israel dying off. But Israel survived. Enforcement of the boycott became inconsistent during the 1990s, when Israel seemed to be approaching peace with the Palestinians. Yet until the Abraham Accords, the notion of a true partnership with Israel still seemed out of bounds. The accords offer the Jordanian economy an opportunity for further integration into the regional economy of Arab countries that are living at peace with Israel, and therefore more growth.