The Impact of Trump’s Potential Policies on the Economies of the Middle East

Monday، December 05، 2016
The Impact of Trump’s Potential Policies on the Economies of the Middle East

The potential policies of US President Elect Donald Trump toward the Middle East as expressed in his recent statements have raised several questions surrounding the extent of his seriousness and the new US administration’s ability to adhere to these policies in the future. During his electoral campaign, Trump avoided publishing a full, clear plan for his policy in the region, but his speeches revealed some potential key features of his policies, the most important of which included avoiding high-level American involvement in the region, abolishing or renegotiating the nuclear agreement with Iran, continuing the war on terrorist organizations, particularly ISIS, and supporting the American oil sector, especially that of shale-oil, which may maintain low oil prices for global markets in the long-term.

If Trump does implement these policies, they will bear repercussions of varying impacts on the economies of the Middle East. The abolishment of the nuclear deal with Iran, or at least imposing more restrictions on economic transactions between Iran and the outside world, will cut confidence in the Iranian economy, and support for the American oil industry will curb hopes of a recovery of global oil prices, which may impact oil exporting countries. On the other hand, continuing the war on terror in Iraq and Syria will strengthen the region’s chance of restoring security and political stability and reduce the high cost of fighting terrorism.

These results, however, are merely expectations and it is impossible to predict the probability that these policies will actually be implemented as long as the Trump administration has time to review former positions and trends. However, it is clear that US economic presence in the region will witness a larger decline than that of the previous eight years in light of America’s general trend toward reducing involvement in the region.

Major Determinants:

Despite the ambiguity and even contradictions inherent to the Trump administration’s attitude toward the Middle East, the main features of his Middle East policy in the future may be determined by a group of major factors, which include:

1. The fight against terrorism: Fighting terrorist organizations and ISIS especially is one of the main factors announced by Trump with regards to his policy toward the region. He has asserted a need to dry up ISIS’ sources of funding and intensify surveillance in order to prevent ISIS’ financial network and other affiliated networks from infiltrating into the global financial system.

2. Weakening Iran: Trump believes that the nuclear agreement reached between Iran and the P5+1 countries in July 2015 is not feasible for the US, where the latter received few concessions from Iran as part of the deal. On the other hand this allowed Iran, according to Trump, to access $150bn which was previously frozen in addition to $400m which the Obama administration transferred to Iran.

Based on this losing equation, it is likely that Trump and his administration will aim to raise the ceiling of economic sanctions imposed on Iran which is widely supported by the US Congress which has stressed a need to impose a blockade on Iran, at least economically, as took place recently when they refused to sell American Boeing aircraft to the latter. The House of Representatives also decided to extend the American sanctions law to Iran, originally enacted in the year 1996, for a further 10 years.

3. Protectionist practices: Trump identified some of the key features of his economic plan which may have significant impacts on global economies, including those of the Middle East. One of the most important of these trends is the need to support the American oil industry and provide the incentives and facilities required to expand production of oil and natural gas domestically. This is a step that, if implemented, will impact oil-exporting countries. It appears that Trump’s administration will rein in foreign trade and American investments abroad as well. This became clear after Trump indicated the potential to withdraw from the Trans-Pacific Partnership agreement, emphasizing the need for American companies to maintain their activities within America and avoid expanding outside the American market. These steps will cause, if enacted, damages to growing global economies, including those of the Middle East. 

Various Implications:

According to the aforementioned trends, we can identify a number of potential economic impacts in the Middle East, which are as follows:

1. The situation of the oil market: Trump has promised to provide incentives to the oil and coal sector in order to support production of oil and natural gas and achieve independence for the energy sector, indicating that his administration will likely reduce dependence on foreign oil. In the future this may lead to fewer American oil imports from global markets, including those of the Middle East, which account for more than half of the region’s exports to the US.

On the other hand, a Trump administration’s success in supporting the oil industry, especially that of shale oil, will increase oil glut in the world at a time when fears of a global economic contraction in the short term have escalated due to the uncertainty caused by Trump’s unclear policies, alongside OPEC’s inability to reach an agreement for production quotas for its member states. Without a doubt, these considerations will ultimately lead to a decline in oil prices on global markets in the short- and medium-term.

But at the same time it appears that the Trump administration will express an interest, like the Obama administration, in maintain freedom of navigation in the Bab Al-Mandeb strait and thus enhance easy flow of oil to global markets and thus support global energy security.

2. Investment presence: The presence of American companies in the Middle East has declined since 2011 despite President Barak Obama launching comprehensive partnership initiatives for trade and investment in the Middle East and North Africa since May 2011. With the exception of Israel and oil-exporting countries, tense security and political circumstances across the region have pushed American companies toward other, safer markets in Asia and Europe.

In addition to the above, Trump’s new potential policy which has raised doubts surrounding the US’s adherence to implementing the nuclear agreement with Iran will make American companies more hesitant to pump funds into the Iranian market in the short-term, fearing potential sanctions.

It appears that American companies will avoid entering other markets in the region to wait for an American policy toward the region to be crystallized, whether through involvement or gradual withdrawal. This will curb US investment flows in the region in the coming months. In contrast, international partners such as Russia, China, and the EU will have the chance to strengthen investment cooperation in general with the countries of the region.

But it is likely in the context of his terror strategy in the region that Trump’s administration is more interested in efforts to build up the Iraqi state and assist in reconstruction efforts after liberating cities from ISIS.

3. The structure of aid: With the increasing likelihood that the new administration will take action to avoid the high cost of engagement in the region, it is expected that official assistance sent to Washington’s allies in the Middle East will be subject to review and a commitment to implementation similar to the memorandum of understanding signed by the Israeli government and the American administration in September 2016, through which the US agreed to grant Israel $38bn from 2019-2028.

However, this does not negate the fact that the new administration may seek to redirect a portion of this aid to the fight against terrorism and work to support peace in the region instead of a focus on economic aid, which was previously the case.

Overall it can be said that although it is difficult to predict the extent of the impact of Trump’s potential policies on the economies of the Middle East at present, until Trump takes offices, these implications are expected to involve a declining political involvement and economic presence for the US in the Middle East which could pave the way for other economic powers, especially China, to search for more opportunities in the Middle East.

Keywords: GCCSaudi Arabiamiddle eastEconomyForeign InvestmentMENAUSATrumpDonald TrumpEconomic Policy