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Last December, Israeli tourists brushed off their government’s warnings against travelling to Arab states of the Gulf. The risk of being stalked by Iranian spies on the streets of the UAE and Bahrain was no deterrence for Israelis seeking the novel experience of visiting countries that had until recently been out of bounds. Their enthusiasm was a hopeful harbinger for businesses gearing up for the opportunities from the new tourist flows, ranging from airlines and travel agencies to a joint venture to supply Abu Dhabi’s hotels with kosher food.

Now, in the aftermath of the fourth Gaza war and communal violence between Jews and Arabs within Israel, those businesses may be in for an uncertain summer. More generally, widespread anti-Israeli sentiment currently spiking in the Gulf countries will test the depth and durability of the economic engagement promised by the signing of the Abraham Accords of 2020.

In addition to diplomatic normalization of relations between the signatories, the accords were meant to open floodgates of trade and investment flows. The early projections were exuberant: Israel’s finance ministry estimated the potential of bilateral trade with the UAE alone at $6.5 billion a year. In March, the UAE announced plans for a $10 billion fund to invest in and alongside Israel in “strategic sectors" in the Israeli economy, including manufacturing, energy and healthcare. There was also talk of joint ventures in other parts of the Middle East, where the UAE has substantial investments and Israel lags far behind. These ventures would be enabled by “people-to-people ties"—specifically, new relationships between Emirati and Israeli entrepreneurs and investors.

The early portends from tourism, a leading indicator of the economic impact of the accords, were very good. More than 50,000 Israelis flocked to Dubai over the New Year’s holiday break, and Israel hoped to attract 100,000 tourists annually from the UAE. Etihad Airways, an Abu Dhabi-based airline, announced new flights to Tel Aviv. Just last month, Israel and the UAE started talks on a quarantine-free travel corridor for people who have been fully vaccinated against covid.

But all that was before Israeli police stormed Jerusalem’s Al-Aqsa Mosque, one of Islam’s holiest sites, using stun grenades and rubber bullets against Palestinian protesters. In the Arab world, this and the communal violence that followed, roused widespread anger—which turned white-hot during the Gaza war.

Throughout, Israeli officials gamely kept up efforts to attract travellers from the Gulf, but it is hard to imagine Emiratis and Bahrainis matching the enthusiasm of Israeli tourists last winter. Arab anger, in turn, may prompt Israelis to rethink a trip to Dubai, Abu Dhabi or Bahrain. Since last week’s cease-fire in the Gaza war between Israel and Hamas, there has been fresh violence at the Al-Aqsa Mosque.

How trade and investment will be affected is harder to predict. Between September 2020 and March 2021, the flows were modest, and tended to go from the UAE to Israel more than the other way around. Israeli investments in Bahrain have been even slower to materialize, despite this independent emirate’s political openness to Israel. And there is no evidence as yet of Bahraini investment in Israel.

Israeli capital investment in the UAE was less than $25 million, in areas like healthcare, consulting, diamond trading and artificial intelligence. Emirati capital investment in Israel was more than thrice as much, about $80 million, but in just three places—in artificial intelligence, a defence firm, and the hospitality and transport sector. Emirati investments into Israel thus far have come from companies connected to state entities, such as Mubadala, the UAE’s sovereign wealth fund, and from private firms with consolidated ownership. This makes them resistant to pressure to disengage from Israel, as long as the UAE government continues to uphold the accords.

But other private investors may be more vulnerable to the prevailing public mood. Powerful pro-Palestinian social-media campaigns represent a new kind of pressure on businesses. Given the anti-Israel sentiment across the Middle East, Emirati business will be circumspect about joint ventures. The decision by Norway’s sovereign wealth fund to drop firms associated with Israeli settlements in the West Bank may make it awkward for investors from the Gulf hoping to capitalize on their own governments’ more accommodative positions.

To a substantial extent, the economic promise of the Abraham Accords is predicated on private enterprise, on business relationships emerging from people-to-people ties. The events of the past three weeks may have stalled progress on that important front.

Karen E. Young is a senior fellow and director of the Program on Economics and Energy at the Middle East Institute.

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