America’s economic prowess gives it much control in the Middle East

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For the last month, American diplomats have been trying to stop the Middle East from collapsing. Ever since Hamas attacked Israel and Israel retaliated, they have lobbied Jerusalem to bring aid into Gaza, stopped between the Gulf capitals to meet with Arab leaders and stopped in Amman and Cairo to ask Israel’s neighbors to help refugees and the wounded. Antony Blinken, the American secretary of state, looks a bit tired.

Regional war has been avoided so far. But American politicians otherwise have little to show for their many flights. Few people have made it out of Gaza, insufficient supplies of food and medicine have arrived and countries in the region are still reluctant to discuss how the war could end. end, especially what may come after Hamas. After his second tour of the area, which ended on November 5, Mr Blinken stressed that “this is all a work in progress.

America’s economic prowess has been a cornerstone of its diplomacy for decades. At the beginning of the war, the hope was that financial gains could persuade Egypt to accept Gazan refugees and squeeze more cooperation from Jordan and Lebanon. All three countries are teetering on the edge of financial ruin – they need help. The problem is that Washington no longer has the tools to compensate governments; certainly not for things that risk upsetting their own people, such as seeing them abandon the Palestinian cause by mocking Israel or taking refugees.

Over the past few decades, American diplomacy in the Middle East has changed. The superpower used to be accused of being too harsh and trying to control other governments. imf programs. Since then, imf sponsorships have become more common, and they arrive with fewer strings attached. American loans have turned into aid worth billions of dollars. In 1991 America and its allies held half of Egypt’s external debt; today Washington holds none. Before the war, the country’s officials preferred to talk about poverty reduction rather than geopolitical favors.

Behind America’s move was the hope that the success of allies, such as the Jordanian monarchy and the Egyptian dictatorships, would stabilize and improve its own reputation, which had been battered by wars in Afghanistan and Iraq. But little economic growth has materialized. The Middle East is home to some of the most troubled economies in the world. Lebanon has fallen over the edge: the government defaulted on its debt in 2020, and it does not have the political stability needed to negotiate with creditors. Inflation is now rising at over 100%.

Others are doing a little better. Unemployment in Jordan is higher than at any time in the past 25 years, except during the covid-19 pandemic, and the state is dependent on aid from America and the a country imf to escape from the origin. Similarly, Egypt has been flirting with the norm since last year’s foreign exchange crisis. Three separate imf aid has stopped in the last decade as a result of the country’s refusal to liquidate loss-making companies run by the armed forces.

Marching orders

This grim picture is a problem for America, and not only because it represents a failure in its aid policies. The country would once be able to forgive debts in exchange for favors, as it did in 1991 as a thank you for Egypt’s involvement in the Gulf war. In 1994, when Jordan was negotiating a peace treaty with Israel, King Hussein’s first request to President Bill Clinton was to forgive debts. Now there is no loan for America forgiveness. In addition, the few American investors and companies that remained in Egypt and Lebanon were packed at the beginning of the financial crisis. So there is not much that officials can do by influencing business as well.

Another option would be for America to offer real aid as part of a grand bargain. Inevitably, however, such a package would face political consternation in Washington. At the same time, any attempt to encourage cooperation by threatening to withdraw aid to Egypt and Jordan would not be credible. In Egypt, most of the American money goes to the military, making it too important to play games with the security situation. In Jordan, more money is going directly into the government budget, but this is widely seen as compensation for the hundreds of thousands of Palestinian and Syrian refugees that the country is sheltering. Politicians in both places believe that they are entitled to their contributions as a fair payment for keeping the peace with Israel and holding the population. “We take the donations because they keep things in balance,” said one of them. “[Americans] I speak to know this.”

What Lebanon receives from America now is mostly humanitarian aid, which amounted to $92m in the year to June. Such funds bypass government coffers and go directly to the people, meaning they offer little financial leverage – and the country’s government is so fragile that they cannot to negotiate Hizbullah, a militia-cum-social movement, controls areas of the country, has its own bank and has gathered tens of thousands of soldiers, who are firing rockets into Israel. Since America lists the group as a terrorist organization, officials can hardly offer it economic benefits.

Without ways to entice allies into good behavior, America’s financial diplomats must punish bad behavior. America is now implementing ten times more sanctions around the world than it did two decades ago. Since October 7, its Treasury department has slapped on two rounds of restrictions covering everything from the Iranian state to Turkish construction companies. Unfortunately, Gaza’s most pressing problems, such as the provision of humanitarian aid and safety for refugees, cannot be solved by sanctions, and Hamas’ finances are opaque enough to oppose American measures. Many of the group’s financiers find refuge in Turkey – a country whose president, Recep Tayyip Erdogan, is reported to have rejected Mr Blinken’s request for a meeting during his recent travels.

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