On April 5, Israel's Transportation and Intelligence Minister announced a plan to connect the Middle East to the Mediterranean markets via Israel, Jordan, and the Palestinian Territories. Many political and economic experts have argued for years that economic cooperation is the easiest and best first step toward regional peace. Such experts include the International Monetary Fund and World Bank Economists, and public figures such as the former Head of the Bank of Israel, Stanley Fisher.
The plan would aim to link countries such as Saudi Arabia, Jordan and Iraq with the Mediterranean via Israeli ports in Haifa and Ashdod. This would be achieved by rail lines that run from Jordan into Israel with areas for connection to the Palestinian Territories. The goal is to facilitate greater multilateral trade between Mediterranean countries like those in Southern Europe and Mid-East Countries.
But the plan could set off a much more consequential ripple effect than boosting the exports of the countries involved. Firstly, the local economies of the countries involved could see international investment on infrastructure projects which would boost employment and wealth. Secondly, is the theory that when countries are linked economically, they are less likely to be adversarial in terms of politics and foreign relations.
While the plan is quite ambitious and would take many years to plan, let alone implement, ideas like this could spark a new focus on smaller, more attainable steps toward economic cooperation by those parties involved in the peace process and regional geopolitical affairs. This, combined with the recent natural gas discoveries in Israel, Egypt and Cyprus (which will be exported to Europe), could cause investors around the world to pay more attention to the region.
While we do not expect this news to have any immediate impact on the stock markets of the countries involved, it is an important development for current and potential investors in Israeli equities to be aware of, especially as it related to our BlueStar Israel Global Index (BIGI) tracked by the NYSE-listed VanEck Vectors Israel ETF, ticker ISRA. BIGI has exposure to Israel’s industrial, real estate and energy sectors.