(Continued from p.6)
makes these regimes highly vulnerable to any significant decrease in pricing. Lately, new sources of oil have begun to open up. Other worldwide producers are greatly increasing production, such as the African littoral states along the Gulf of Guinea (especially Angola and Nigeria), Central and South American states, such as Venezuela, and North Sea oil producers. Additionally, other areas of Africa have an abundance of massive, unde-
The West will soon have greater financial and business interests in Israel and Turkey than in the oil producing countries.
Added to the concern of declining oil prices, there has been a dramatic decline in foreign direct investment in the economies of the oil producers. Consequently, Saudi Arabia's (as well as Iran's) failure to convert oil-wealth into a development program that sparked broad-based economic activity, its high population growth, and its massive military expenditures contribute to the erosion of political legitimacy and social cohesion. Saudi Arabia is finding it increasingly difficult to finance its intricate system of political allegiances and development so central to its stability. These budget problems can easily result in internal instability, meaning that not only are Saudi Arabia's indigenous military capabilities questionable, but the stability and safety of anchoring the United States' entire regional military presence to continued presence in Saudi Arabia is also dubious.
In contrast, recent trends in capital flows indicate that the emerging economic development around the region has shifted to Israel and Turkey. The West will have greater financial and business interests in these countries than in the oil producing countries. Israel in particular has become an economic powerhouse that dwarfs all its regional neighbors and rivals Saudi Arabia in GNP. Moreover, it is poised for further, high-technology, broad-based economic growth. Politically, not only has this eroded the boycott against Israel, but it has transformed Israel into a regional economic, rather than just military, power. This shift is displayed dramatically in UNCTAD's June 1997 report on direct foreign investment in the region. Foreign Direct Investment (FDI) decreased to mainly Arab countries from 10% of the globe's total in the early 1980s to only 1% by the end of the 1990s. Saudi Arabia accounts for the bulk of the drop; it had a FDI of $5 billion per annum in early 1980s, but had only $700 million per annum from 1990-1995. In contrast, Israel, which in the early 1980s had FDI amounting to only $76 million per annum, had increased to $420 million by 1995, becoming the region's second greatest importer of FDI. The trends have sharpened even more dramatically since 1995, which represent the latest composite figures provided by UNCTAD. In fact, by 1999, Israel attracted over $4 billion dollars in venture capital investment alone, making it most likely the largest magnet of FDI in the region.
Accordingly, the center of economic activity, and the West's market interests, is shifting toward Israel and other regional countries whose economies are not based so heavily on oil, such as Turkey. The United States must begin to think about the economic vibrance of Israel as an economic and security interest (and opportunity) in its own right. These changes profoundly affect strategic implications for the United States. Other, more-powerful, economically diversified, and vibrant Western allies lie close to the center of this oil-producing region. Israel and Turkey seem especially well-suited and located for anchoring US strategic interests.
The changing economic patterns drive changes in the geo-strategic politics of the region. Beyond its rise as an economic interest in its own right, Israel's emerging power can also profoundly affect America's regional strategic position. Until now, Israel has been regarded as an albatross for securing the West's core regional strategic and economic interests. However, as the oil producing region extends into central Asia, the particular Arab-Israeli tensions which subordinated Israel's utility as a military and economic ally in the region have been counterbalanced by Israel's close relations and deep economic involvement in central Asia. Moreover, as fractionalization grips the Arab world, as it has in recent years, some Arabs, such as Jordan, have abandoned the framework of the old Arab-Israeli conflict and embraced closer ties with Israel as a strategic counterbalance to their fraternal, but frequently homicidal, neighbors. Israel moved from being a diversion for Arabs to overcome their internal conflicts to becoming a powerful and often courted regional actor in internal Arab feuds. As a result, Israel is poised to become one pillar anchoring the West's strategic interests in the region, protecting itself, and helping the West protect other regional spots of economic interest.
This parallels changes in the region's strategic relationships. The PLO remains closely aligned with Saddam Hussein, with whom Jordan had entered a dangerous competition after trying to topple the Baghdad
(Continued on p.8)
May 1999 - 7 - Outpost