MENA Strategic Bulletin

Geopolitics and Security

Hamas and Fatah sign unity deal in Beijing aimed at Gaza governance

On July 23, 2024, China brokered an agreement between Hamas and Fatah and 12 other Palestinian groups on forming an interim national reconciliation government to manage the post-war governance of Gaza, the West Bank, and Jerusalem. The agreement is a significant step forward for improving inter-Palestinian relations and post-war arrangements.

Stakeholder Impact: The proposed unity government would be tasked with overseeing reconstruction and preparing for elections in Gaza. Implementation faces considerable challenges – not least the deep-rooted enmity between Hamas and Fatah. Its viability is also threatened by Israel, – its government has firmly rejected the deal as it objects to any governance role for Hamas – as well as strong opposition from Israel’s Western partners, particularly the US. China’s advocacy for broader peace process and a two-state solution – regarded as crucial for a stable Middle East – is an important development. Stability is key to preventing a wider conflagration in the region, as well as keeping oil flowing from the Gulf and ensuring maritime security in the Red Sea.

What’s Next? The lack of a clear timeline for implementation and the entrenched positions of key stakeholders suggests that progress on the agreement may be slow. However, China’s increasing diplomatic involvement in the Middle East, as demonstrated by this mediation effort, could introduce new dynamics into the region’s geopolitical landscape, potentially affecting market conditions and investment opportunities.

US destroys three Houthi missile launchers in Yemen

The US Central Command on Wednesday announced the destruction of three Houthi missile launchers in Yemen. The operation is the latest in a series of pre-emptive strikes aimed at preventing attacks on international shipping in the Red Sea by US and UK forces. They have conducted numerous attacks on Houthi-held areas since January with the aim of neutralising threats from missile launchers, unmanned aerial vehicles, and drone boats. Earlier this week, the Houthis launched a drone strike in Tel Aviv, prompting Israeli airstrikes in Hodeidah that resulted in significant casualties and infrastructure damage. Houthi officials recently claimed that full operations in Hodeidah Port have resumed.

Stakeholder Impact: The US military’s ongoing actions are critical in ensuring the safety and freedom of navigation of international shipping companies in one of the world’s busiest maritime corridors. For the Yemeni government and its allies, its operations support their efforts against the Houthi militia, which have escalated attacks on shipping and detained international humanitarian organisation workers in Yemen. The latter actions are part of a strategy to tighten control over, and leverage, international aid flows to Yemen. Investors in the MENA region should be aware of the heightened security measures and potential disruptions in maritime trade, which could affect shipping costs and timelines. Additionally, the geopolitical tensions may influence regional stability, impacting investment climates and economic prospects.

What’s Next? It is crucial to monitor the continuing military engagements in the Red Sea, as well as how key regional players like Saudi Arabia and Israel respond. The effectiveness of US and UK pre-emptive strikes in deterring Houthi attacks will be pivotal in maintaining secure maritime routes. Furthermore, the international community’s stance on the Houthis’ demands and the Houthis’ treatment of humanitarian organisations are likely to affect the humanitarian and the political landscape in Yemen.

Business and Economy

GCC Banks Show Strong Appetite for International Expansion

GCC banks are increasingly seeking to expand their footprint in Turkey, Egypt and India – attracted to their large populations, robust GDP growth outlook and relatively underdeveloped banking sectors relative to the GCC markets, as well as improved economic conditions more generally. With banking system assets-to-GDP ratios below 100% in these markets compared to over 200% in the GCC, and private credit-to-GDP ratios notably lower, there’s a lot of potential for GCC banks to expand.

Stakeholder Impact: The expansion of GCC banks into these high-growth-potential markets presents new investment opportunities and potential for increased returns for investors. Macroeconomic conditions and the operating environment in the banking sector of both Turkey and Egypt are becoming more favourable amid policy changes that sought to restore financial and economic stability in these countries. As of the first quarter of 2024, GCC banks held approximately $150 billion in assets in Turkey and Egypt, underscoring the strategic importance and potential for market growth. Appetite for expansion into India is strong among UAE banks in particular, as the UAE and India have strengthened financial and trade ties.

What’s Next? The strategic focus on Turkey, Egypt, and India will likely continue to drive GCC banks’ growth. In Turkey, anticipated reductions in inflation and enhanced currency stability are predicted to boost returns on investments. In Egypt the positive outlook on the banking sector, driven by structural reforms and increased foreign investments, presents substantial opportunities for GCC banks. However, the rising costs of acquisitions and potential challenges in integrating new assets must be managed carefully. Investors should monitor these developments closely, as successful expansion into these markets could significantly enhance the profitability and global presence of GCC banks.

Humanitarian Issues

UK restores funding for UNRWA

The UK government has announced the restoration of funding to the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). The decision comes with a commitment of £21 million ($27.1 million) in new funding. It follows a five-month suspension of financing after allegations by Israel that some UNRWA employees were involved in a Hamas attack on October 7. An investigation led by former French minister Catherine Colonna found no evidence to support the allegations.

Stakeholder Impact: The reinstatement of funding is a significant development for Palestinian refugees, as it ensures the continuation of critical services such as healthcare, education and humanitarian aid. For UNRWA, the funding secures its operational capacity in Gaza and other regions, where it is the second-largest employer. Investors may see this as a stabilising factor for the region.

What’s Next?  UNRWA will focus on implementing the recommendations from the Colonna report to strengthen its operational integrity and transparency. This includes enhancing internal audits and improving project management oversight. The restoration of funding is expected to bolster UNRWA’s efforts in providing essential services and aid, particularly in Gaza, where it supports over half of the population. This move may also influence other nations and organisations to renew their support, contributing to a broader international effort to address the humanitarian needs of Palestinian refugees.

Paramilitary RSF agrees to US-mediated talks on Sudan war

The paramilitary Rapid Support Forces (RSF) has expressed willingness to participate in US-brokered ceasefire talks aimed at ending the ongoing conflict in Sudan. The negotiations will be co-hosted by Saudi Arabia and will take place in Switzerland on August 14. It will include the African Union, Egypt, the UAE and the UN as observers. The urgency of the situation is underscored by a UN report published in June 2024 highlighting that nearly 26 million Sudanese are facing food shortages due to the war.

Stakeholder Impact: Co-hosting these talks shows that Saudi Arabia trying to demonstrate its ability to play a leading diplomatic role in the Arab world. Sudan is also an important investment destination for Saudi Arabia, particularly with respect to the kingdom’s food security strategies. A successful ceasefire would be a crucial first step toward restoring stability in Sudan. It would alleviate regional stability and the ongoing humanitarian crisis, allowing the delivery of aid and the rebuilding of essential infrastructure.

What’s Next? The upcoming talks in August represent a crucial opportunity to end the conflict in Sudan. However, significant challenges remain. Although the RSF has shown willingness for US-mediated talks which is a step in the right direction, Sudan’s army, led by Abdel Fattah al-Burhan, has yet to respond to the invitation. The international community will need to maintain sustained diplomatic engagement and provide necessary support for a successful peace process as efforts so far to bring the war to an end have been met with little success.