Middle East and the Economics of War
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As the conflict between Israel and Hamas continues, it seems like we are fighting an information war littered with propaganda. I want to be mindful of what I personally put in this newsletter, as it is meant to serve as a source of information, as I have many readers who were raised with an opposing view, and coming to a middle ground here will take time.
Instead, I would like to take a look at some of the economic factors at play for this conflict.
What Are the Abraham Accords?
Before the Hamas terrorist attack on October 7th, there was a significant undertaking to bring peace to the middle east through the Abraham Accords.
The Abraham Accords are a series of agreements and normalization deals signed in 2020 between Israel and several Arab countries, including the United Arab Emirates (UAE), Bahrain, Sudan, and Morocco. These agreements marked a significant shift in Middle Eastern diplomacy and were brokered by the United States under the Trump administration.
I was personally in the UAE when they came into effect and saw a wave of Israeli’s come to Dubai to build new business relationships. It was a happy and peaceful time in the region, as the Burj Khalifa was lit up with the Israeli flag for Chanukkah that year, and Israeli celebrities through lavish parties in Dubai.
The primary goals of the Abraham Accords were to:
Normalize diplomatic, economic, and cultural relations between Israel and the signatory Arab countries.
Foster greater regional stability and cooperation in the Middle East.
Promote economic and technological partnerships between Israel and the Arab nations.
The Abraham Accords were seen as a historic breakthrough because they represented a departure from the long-standing Arab consensus that recognition of Israel would only come after the resolution of the Israeli-Palestinian conflict. Instead, these agreements established formal diplomatic relations between Israel and these Arab nations without requiring Israel to make concessions regarding the Israeli-Palestinian conflict.
The negotiation of the accords were led by Jared Kuschner, former senior advisor to President Donald Trump.
Saudi Arabia and Israel appeared to be making significant strides towards establishing their own diplomatic relations shortly before the Hamas terrorist attack on October 7th, 2023. Many suspect that Iran, the primary supporter of Hamas, timed the attack to thwart the agreement.
This potential agreement could have included a strengthened security pact with the United States and possibly approval for Saudi Arabia to develop nuclear capabilities, thereby bolstering its position in relation to its regional rival, Iran.
At the center of this evolving situation is Mohammed bin Salman, the 38-year-old Crown Prince of Saudi Arabia. He represents a new generation of Gulf leaders who have not dealt with a full-scale conflict involving Israel. Now, he faces the challenging task of balancing Saudi Arabia's rivalry with Iran, its role in the global oil market, overseas investments, and the sentiments of its 32 million citizens. His response holds profound implications, not only for his vision to modernize the Gulf's largest economy but also for global dynamics.
During discussions with British Prime Minister Rishi Sunak, the Saudi Crown Prince strongly condemned the targeting of civilians in Gaza as a "heinous crime and a brutal attack."
In contrast, the UAE maintained its official support for Israel while also voting for a ceasefire next week.
Meanwhile, Qatar, known as a haven for Hamas leaders, has threatened to cut off gas supplies to all allies (including Europe which already suffered from fuel shortates as a result of the Ukraine conflict) if a ceasefire is not achieved.
Hamas's motivation to disrupt a U.S.-Saudi-Israel pact is evident. Such an agreement would isolate Hamas from the Arab world. Any positive outcomes for the Palestinian people within this agreement would weaken Hamas's control and undermine its primary goal of destroying Israel. A normalization agreement would also empower U.S. Central Command to expand and implement a regional security framework, enabling the U.S. and its partners to address the asymmetric military threats posed by Hamas and Iran's proxies in the region.
Lebanon Enters Conflict
Israel is currently managing multiple fronts, as Lebanon appears to be getting involved in the conflict. This development arises from concerns that Hezbollah, a prominent Shiite militia in Lebanon, might become engaged in the ongoing conflict primarily centered in the Hamas-controlled Gaza Strip.
Israel is actively reinforcing its border with Lebanon, potentially preparing for a second front in its battle against Islamist militants. There is growing apprehension in towns like Shtula in this hilly region that Hezbollah might enter the conflict.
The international community is actively working to reduce the risk of a broader confrontation between Israel and Hezbollah. The United States has deployed warships to the region as a deterrent against a full-scale attack by Hezbollah and its Iranian allies.
Due to escalating tensions in the region, Saudi Arabia has issued an urgent advisory for its citizens to immediately leave Lebanon. In addition to this, reports suggest that the Saudi embassy in Beirut has been closed due to unsettling events in southern Lebanon, where clashes between Israeli forces and local residents have resulted in at least 18 casualties.
Is This Another East Vs. West Proxy War?
This situation prompts questions regarding the hidden motivations at play. It's apparent that Russia and Iran have solidified their relationship, while both China and Russia have openly criticized Israel. In contrast, the U.S., the U.K., and the E.U. have unequivocally declared their support for Israel.
Given that Russia is still under sanctions from the U.S. and Europe due to the ongoing Ukraine conflict, it remains unclear how this coalition of eastern powers will exploit the Middle East situation to their advantage.
This Week By the Numbers 📈
During his highly anticipated address to the Economic Club of New York, Powell asserted that inflation remains excessively high, inflation measures are needed, and yet, interest rate hikes will pause for November and possibly December.
This week’s headlines:
BlackRock's CEO, Larry Fink, characterises the surge in Bitcoin (BTC) as a 'flight to quality.'
Stock markets experienced a 1-1.5% decline in response to rising oil prices and bond yields.
Tesla did not sell any of its $312,000,000 worth of Bitcoin in Q3 2023.
Stablecoins, currently with a total market capitalization of $120 billion, rank as the 16th largest holder of US treasuries among sovereign entities.
US bankruptcy filings have doubled in the past nine months.
The US national debt has reached $100,000 per person.
Nvidia's stock price has fallen by 5%, following the US decision to block chip sales to China.
Oil prices have risen by 3% following an attack on Gaza hospital.
President Biden plans to request $100 billion in aid for Israel and Ukraine.
Bitcoin (BTC) dominance has reached a new high for 2023.
Google searches for 'housing crisis' have reached an all-time high.
Demand for US mortgages has hit a 30-year low.
Top Stories 🗞️
Swedish climate activist Greta Thunberg on Tuesday was detained by police after joining hundreds of protesters to disrupt a major energy conference in London. Thunberg was arrested outside the InterContinental London Park Lane hotel during the “Oily Money Out” protest organized by Fossil Free London and Greenpeace. The demonstration was held on the first day of the Energy Intelligence Forum, a three-day gathering of major oil and gas executives, politicians, and civil society groups. Among those scheduled to speak at the Energy Intelligence Forum, formerly known as the Oil and Money conference, include Occidental Petroleum CEO Vicki Hollub, Saudi Aramco CEO Amin Nasser and Shell CEO Wael Sawan.
Shares of Tesla closed down 9% Thursday, a day after the electric automaker released third-quarter results that missed on top and bottom lines. Tesla reported revenue of $23.35 billion and earnings of 66 cents per share, adjusted, both of which fell short of the estimates Wall Street was expecting. It was the first time Tesla has missed on both earnings and revenue since the second quarter of 2019. During the company’s quarterly call with investors, CEO Elon Musk shared pessimistic commentary about the state of the global economy, expressing concerns about the high interest rate environment and said it makes it harder for consumers to buy cars. Musk said Tesla is working to bring down the costs of its vehicles, which it will prioritize before the company goes “full-tilt” on building a new factory in Mexico. “We have to make our products more affordable so people can buy it,” Musk said on the call.
The market for tokenized assets could grow to as large as $10 trillion in this decade as traditional financial (TradFi) institutions continue to adopt blockchain technology, digital asset management firm 21.co said in a report. "The convergence between crypto and traditional asset classes, including fiat currencies, equities, government bonds, and real estate, is experiencing an unprecedented growth," read the report. "We estimate that the market value for tokenized assets will be between $3.5 trillion in the bear-case scenario and $10 trillion in the bull case by 2030." 21.co's forecast joins a slew of recent reports and predictions about the potential of tokenizing real-world assets (RWA), crypto's buzzword for placing traditional financial products such as private equity, debt and real estate to blockchain rails.
Bankrupt crypto exchange FTX floated an amended proposal to return up to 90% of creditor holdings held at the exchange before it went bust last November. The debtors' group will formally file the plan to a U.S. bankruptcy court for perusal by Dec. 16. The proposal states that customers with a preference settlement of less than $250,000 can accept the settlement without any reduction of claim or payment. Preference settlement is 15% of customer withdrawals on the exchange, nine days before it went under. Creditors would further receive a "Shortfall Claim" against the general pool corresponding to the estimated value of assets missing at their exchange – estimated to be nearly $9 billion for FTX.com and $166 million for FTX.US, the exchange’s U.S. arm. However, recoveries could be marred by various factors, such as taxes, government claims, token price fluctuation, etc.
The U.S. Securities and Exchange Commission dropped claims against two Ripple Labs executives in its lawsuit alleging the blockchain company violated U.S. securities law, according to a court filing in New York on Thursday. The agency said in court papers it is dropping claims that Ripple Chief Executive Brad Garlinghouse and co-founder Chris Larsen aided and abetted sales of the cryptocurrency XRP which a judge has found amounted to unregistered sales of securities. In its December 2020 lawsuit, the SEC accused Ripple of illegally raising more than $1.3 billion in an unregistered securities offering by selling XRP. U.S. District Judge Analisa Torres in Manhattan granted Ripple a partial win in the case in July, finding that sales of XRP on public exchanges were not unregistered securities offerings. Torres subsequently rejected a request by the SEC to appeal that ruling.
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About the Author: Tatiana Koffman
Hi there and thanks for reading! If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I write to make financial topics more accessible and create equal opportunity for the next generation of investors. I have personally invested in 20+ companies and funds (👉 my portfolio).