Ben Harburg, Managing Partner, MSA capital, is speaking at SuperReturn Middle East 2023 about the effect of conflicts in Yemen, Syria, Libya and Iraq and the investment community. We spoke to him about some of the insights he will be sharing on geopolitical shifts in the region, how the future of U.S policy is expected to effect it and how it will impact the financial sectors in across MENA.

How does geopolitical risk and financial development affect economic growth in MENA countries?

The relationship between geopolitical risk, financial development, and economic growth in MENA countries is highly contingent on the specific circumstances in each nation. For instance, the Syrian war took a hit on agricultural supply for the entire region and resulted in a massive refugee crisis which had spillover effects on neighbouring.

The 2017 diplomatic crisis between Qatar and several other GCC countries (Saudi Arabia, UAE, Bahrain) disrupted trade, investment, and financial flows. This led to economic challenges in Qatar and had ripple effects throughout the region.

Lebanon's financial sector was once considered a regional hub, but years of political instability and conflict, including the 2020 Beirut explosion, have led to a severe financial crisis with millions within and outside of Lebanon left penniless as devalued money was stuck in local banks.

As part of their plans for economic growth, governments in the area frequently seek to reduce geopolitical risk and encourage the development of the financial sector; but, because every nation has different difficulties, progress can vary. It's crucial to remember that there is a nonlinear relationship between financial development and economic growth. As demonstrated by certain instances of excessive risk-taking and speculative bubbles, an uncontrollably quick expansion of the financial sector without adequate regulation and oversight can result in financial instability.

Let us discuss new geopolitical alignments in the Middle East and the future of U.S. policy in the region. What role does the U.S. play, and what is the reality and perception of U.S. withdrawal from the region? What are policy recommendations for the U.S. strategy going forward?

The Middle East's geopolitical alignments have been evolving, and the future of U.S. policy in the region remains a topic of debate. Key factors influencing these developments include shifts in alliances, Iran's role, regional conflicts, and oil and energy resources. The U.S. has historically played a dominant role in the region, providing military support, economic aid, and security guarantees. However, the perception of U.S. withdrawal has led to concerns among regional partners and allies about potential security vacuums and the balance of power.

New Geopolitical Alignments:

• Arab-Israeli Normalization: The Abraham Accords, brokered by the U.S. in 2020, normalized diplomatic relations between Israel and several Arab states including the UAE, Bahrain, Morocco, and Sudan. This is a significant realignment in the region, reducing historical tensions and potentially creating a new coalition of interests.
• Turkey's Regional Ambitions: Turkey has become more assertive in its regional policy, involving itself in conflicts in Syria, Libya, and the Nagorno-Karabakh region, and seeking to position itself as a key player in the Middle East.
• Iran-Saudi Rivalry: The rivalry between Iran and Saudi Arabia continues to shape regional dynamics, with both nations vying for influence through various proxies and allies across the Middle East.
• Russian and Chinese Involvement: Russia and China have been expanding their influence in the Middle East. Russia has intervened militarily in Syria, while China has been increasing its economic investments across the region.

Policy recommendations for U.S. strategy include a balanced approach, focusing on core interests while reducing military involvement and playing less assertive roles in new conflicts. This includes engagement through multilateral organizations, counterterrorism efforts, the Iran Nuclear Deal, energy transition, humanitarian assistance, and accountability for sovereignty. The reality is more nuanced as the U.S. remains engaged in the region through military bases, arms sales, and diplomatic efforts such as the Abraham Accords. Nevertheless, the U.S. should prioritize its core interests while reducing military involvement where possible, focusing on counterterrorism and funding efforts against groups like ISIS and al-Qaeda, addressing the Iran Nuclear Deal, supporting regional initiatives, diversifying energy sources, providing humanitarian aid, and upholding principles of state sovereignty.

With global geopolitics playing an integral part in MENA’s energy transition, could you comment on the latest developments in the energy sector following the recent shift in geopolitical dynamics?

The MENA region is shifting towards renewable energy and sustainability, diversifying its energy sources due to environmental concerns, energy security, and changing global energy markets. Solar and wind power production is becoming more common, reducing the region's carbon footprint. Geopolitical tensions, such as conflicts in Syria, Libya, and Yemen, disrupt energy infrastructure and supply routes. Governments are working to enhance energy security by diversifying energy sources and exploring regional cooperation options.

International investments in the MENA energy sector are significant, with major global energy companies involved in various projects. Advancements in technology and innovation are playing a crucial role in the region's energy transition. The evolving geopolitical landscape has led to the formation of new strategic alliances, such as the Abraham Accords, which create opportunities for regional cooperation in the energy sector. Economic diversification is also being pursued, with many countries investing in industries like petrochemicals, tourism, and tech to reduce their vulnerability to global energy market fluctuations.

What are your thoughts on the idea of establishing a regional bloc? Could it indeed offer a more structured avenue for dialogue and cooperation, or would it end up being a lost cause?

While it could offer advantages in terms of economic cooperation, security, and stability, the deep-seated geopolitical divisions and diverse interests in the region make it a complex undertaking. Whether such a bloc is a lost cause or useful will depend on the willingness of MENA countries to address these challenges and work together towards common goals. It would require strong diplomacy, and a long-term commitment to regional integration.

Potential Benefits: Economic cooperation, stability and security, energy collaboration, infrastructure development, and defence development.

Challenges: Geopolitical divisions, sovereignty concerns, political instability, diverse interests, historical tensions.

Looking forward towards 2024, where do you think some of the biggest pockets of growth will be found in this region?

Renewable Energy: Many Middle Eastern countries, notably the UAE and Saudi Arabia, have been investing heavily in renewable energy, especially solar and wind power.

Technology and Innovation: With initiatives like the Dubai Future Foundation and Saudi Arabia's Vision 2030, there's a strong push towards fostering innovation and developing a startup ecosystem. Tech hubs and smart cities like NEOM in Saudi Arabia are examples of this.

Finance and Banking: With the rise of fintech and digital banking solutions, many Middle Eastern countries are positioning themselves as hubs for financial innovation. Bahrain, for instance, has been actively promoting itself as a fintech hub.