Political Economy and Geopolitics of Israel

The economy of Israel is a diversified, technologically advanced market

economy with substantial state ownership and a rapidly developing high-tech
sector. Israel's tech market is very developed, and the high-tech sector is likely to
be the major driver of the Israeli economy. Israeli companies, particularly in the
high-tech area, have recently enjoyed considerable success raising money on the
world financial markets. Israel is one of the world's centers for diamond cutting and
polishing. It also is a world leader in software development. Israel now ranks 2 nd
among foreign countries in the number of its companies listed on US stock
exchanges. Israel is also one of the world's major exporters of military equipment.
In terms of external trade, The US is Israel's largest trading partner. The 2 countries
signed a free trade agreement in 1985 that progressively eliminated tariffs on most
goods traded between the 2 countries. Israel also has trade and cooperation
agreements in place with the EU and Canada.

As for oil factor, Israel produces almost no oil and imports nearly all its oil
needs. Traditionally, major oil import sources have included Egypt, the North Sea,
West Africa, and Mexico. In recent years, however, Israel has stepped up its imports
from Russia and the Caspian region (Kazakhstan, Turkmenistan, etc.) and also
signed a deal to purchase from Angola. Although oil exploration in Israel has not
proven successful in the past, drilling is being stepped up. Geologically, Israel
appears to be connected to the oil-rich Paleozoic petroleum system stretching from
Saudi Arabia through Iraq to Syria. Since 1998, Israel’s government has been
working to reform the highly centralized Oil sector. Israel has 2 major refineries,
both owned and operated by Oil Refineries Limited (ORL). The plants, which are
located at Haifa and Ashdod, meet all of Israel’s demand for refined oil products.
Although Israel itself produces almost no oil, a comprehensive settlement of the
Arab-Israeli conflict could affect Middle East oil flows significantly. Israel’s
geographic location between the Arabian Peninsula and the Mediterranean Sea
offers the potential for an alternative oil export route for Persian Gulf oil to the
West.

In 2009, the Delek-Noble an energy exploration partnership, announced a

massive natural gas discovery off Israel’s northern coast. This discovery is very
good for Israel and validates the belief that significant oil and gas reserves can be
found in Israel. The discovery also reinforces the decision by the Government of
Israel to continue building the gas pipeline infrastructure and electric generating
plants powered by natural gas. Israel hopes to increase the share of Natural Gas in
its fuel mix for energy security, economic, and environmental reasons.

Geopolitics of Israel requires a consideration of 3 dimensions. First is the

internal geopolitics of Israel. Israel is located on the eastern shore of the
Mediterranean Sea, on the Levant. The Levant in general and Israel in particular has
always been a magnet for great powers. No Mediterranean empire could be fully
secure unless it controlled the Levant. The Levant is the crossroads of continents,
and Israel lies in the path of many imperial ambitions. Israel therefore occupies
what might be called the convergence zone of the Eastern Hemisphere. Israel is
geographically divided into 3 regions, which traditionally have produced 3 different
types of people. 1st, its coastal plain which facilitates commerce, serving as the
interface between eastern trade routes and the sea. It is the home of merchants
and manufacturers and cosmopolitan for Israel. 2nd, the northeast is hill country,
closest to the north of the Litani River and to the Syrian threat. It breeds farmers
and warriors. 3rd, the area south of Jerusalem is hard desert country, more
conducive to herdsman and warriors than anything else. Jerusalem is where these
three regions are balanced and governed.

Second dimension, is the interaction of Israel and the immediate neighbors

who share borders with it. The main neighbors of Israel are Egyptians, Syrians and
those who live on the east bank of Jordan. But Israel can resist its neighbors for it is
well-buffered in 3 directions. The Sinai Desert protects it against the Egyptians.
Israel is similarly protected from the southeast by the deserts Eilat-Aqaba. The
eastern approaches are similarly secured by desert, east of the Jordan River.

Last dimension is Israel’s interaction with the great powers, beyond Israel’s
borderlands. Danger arises when more distant powers begin playing imperial
games. Israel is normally of interest to outside powers because of its strategic
position. While Israel can deal with local challenges effectively, it cannot deal with
broader challenges. It lacks the economic or military weight to resist. Therefore,
while Israel’s military can focus only on immediate interests, its diplomatic interests
must look much further. Israel is constantly entangled with global interests, seeking
to deflect and align with broader global powers.

Israel exists in 3 conditions. 1st, it can be a completely independent state.

This condition occurs when there are no major imperial powers external to the
region. This called the David model which exists primarily when there is no external
imperial power needing control of the Levant. 2nd, it can live as part of an imperial
system — either as a subordinate ally or as a moderately autonomous entity. In any
case, it maintains its identity but loses room for independent maneuvering in
foreign policy and potentially in domestic policy. This is called the Persian model
which exists when Israel aligns itself with the foreign policy interests of such an
imperial power, to its own benefit. Finally, Israel can be completely crushed — with
mass deportations and migrations, with a complete loss of autonomy and minimal
residual autonomy. This is called Babylonian model which exists when Israel
miscalculates on the broader balance of power and attempts to resist an emerging
hegemon.

Israel’s real threat lies in the event of internal division and/or a great power,
coveting Israel’s geographical position, marshalling force that is beyond its capacity
to resist. Israel’s reality is this. It is a small country, yet it must manage threats
arising far outside of its region. It can survive only if it maneuvers with great powers
commanding enormously greater resources. Israel cannot match the resources and,
therefore, it must be constantly clever. For Israel, the retention of a Davidic
independence is difficult. Israel’s strategy must be to manage its subordination
effectively by dealing with its patron cleverly. But cleverness is not a geopolitical
concept. It is not permanent, and it is not assured. And that is the perpetual crisis of
Jerusalem.