Are Economics the Best Way to Get the Israelis to the Table?

Pieria 5/7/13

As Secretary of State John Kerry continues to pull rabbits out of his hat and get headlines in his attempt to get the Middle East Peace Process back on track, the parties involved seem less keen.

As predicted, the Palestinians did not react well to the economic levers that Kerry announced, seeing it as another attempt to trade Palestinian political rights for an economic peace. A question that needs to be answered is: does the use of economic levers in Israel/Palestine negotiations help or hinder their progress?

Linkage theory

While the Palestinian side of this dynamic has been well explored, for the Israelis there are still some false assumptions. In order to discover them, first we need to understand how the Israelis see the conflict.

The Israelis are keen to stress that the conflicts in Syria, and elsewhere in the Middle East, demonstrate that the so-called ‘linkage’ theory is disproven. ‘Linkage’ is the concept that by solving the Israeli Palestinian conflict you would create stability in the region and it is at the root cause of the majority of the problems the Middle East faces.

Many, including the Israeli government, dispute this analysis and instead point to the general instability in the Middle East as their main concern of making peace agreements with parties whose own political future is in question.

What the Israelis will point to, however, is that allowing daylight between the West and Israel on any issue in the diplomatic arena is a green light to Israel’s enemies. So while the Israelis will decry linkage as a reason to end the Israeli-Palestinian conflict, they do maintain that a diplomatic sanction aimed at their behavior towards the Palestinians directly affects all other parts of their security dynamic.

This complexity of the security picture that the Israelis face in a regional context is often forgotten due to the focus on the Israeli-Palestinian conflict. For the majority of the world, the frame of reference for the Israeli-Palestinian conflict is one of an asymmetric occupation. For the Israelis the frame is the Israeli-Arab conflict that puts Israel against almost all the countries of the Middle East.

These frames of reference matter. The tools available to those attempting to press Israel towards substantive negotiations depend to a large extent on which of these perspectives is adopted.

Falling value of economic leverage

It is in this light that we should view the common assumption within much of Europe that if the US put on the economic squeeze on the Israelis, they could get them to do what they wanted. Many point to the 90s, where the first President Bush suspended loan guarantees to push Israel into the Madrid Peace Conference.

Economic pressure has, over the past few years, been the favored tool of civil society that is critical of Israel and her actions towards the Palestinians. The Boycott, Divestment and Sanctions campaign is a non-violent strategy to change the status quo vis-a-vis Israel and the Palestinians. Various groups have different goals in their campaigns – but share the belief that economic pressure can force the Israelis to change their policies.

One of the major problems with this approach is that the country is not the same as it was in the early 90s. Israel is now a member of the OECD and has turned into a high tech powerhouse. The ‘start-up nation’ continues to be a magnet for direct foreign investment from huge multi-nationals and celebrity investors.  Add to this the new natural gas and potential tight oil finds and Israel’s economic future looks anything but bleak.

Yet with all this private sector success, Israel is still the largest recipient of foreign aid from the USA running at just over $3 billion a year. If only the US would put policy riders on this aid, the argument goes, then Israel could be forced into a more pro-peace position.

While this huge amount of aid may look like the perfect leverage, the current US and geo-political realities have made this far less clear.

Much of the aid is supplied in order to maintain Israel’s qualitative military edge in the region at large. For the majority of the supporters of this aid package, Israel is viewed in the context of the entire region.

Moreover even if John Kerry wanted to add conditions to the aid, it is not in his power to do so. It is up to the US Congress to allocate aid and at present it would be almost unthinkable for Congress to change its mind, given current events in the Middle East.

For the vast majority of Congress, the aid is an easy way to make sure that a nation that shared the vast majority of its foreign policy objectives, as well as many of its overall values, can do so without US troops. As Israel has shown in Syria, it is happy to take the lead if it feels it needs to. In a rapidly changing strategically important region, a war weary US population may balk at withdrawing money from an ally who is willing to fight on the front lines.

A diplomatic approach

Given this, is there anything left in John Kerry’s bag of tricks to get the Peace Process rolling again?

To my mind the answer is not to focus on economic levers but to look at diplomatic ones instead. If Israel is keen on denying that ‘linkage’ exists, then Kerry’s team should detach their support for Israel in the context of the region as a whole from their support of Israel with regard to the Palestinians. By making it clear that the US will not have Israel’s back in the UN Security Council when it comes to settlement expansion they can demonstrate a clear stick within the Israeli-Palestinian frame of reference to Israel’s non-compliance.

This way they can maintain their support for Israel’s role within the wider Middle East, if they so wish, yet still create pressure within the narrower sphere of negotiations with the Palestinians.

Israel’s Achilles heel has morphed from economic to diplomatic dependency. With this being the case, Kerry’s team needs to adopt a complex view to its diplomatic relations with its number one ally in the region. Having Israel’s back in a hostile neighborhood is different from enabling it diplomatically to entrench its occupation of the Palestinians.

Kerry has set up the carrot of the Arab Peace Initiative, he now needs a diplomatic stick to help him guide the peace process back on track.

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