Saudi Arabia reiterates preconditions for normalizing relations with Israel

In an interview with the Riyadh-based Arab News, Abdallah Al-Mouallimi, the kingdom’s permanent representative to the UN, said Riyadh is committed to the Arab Initiative for peace, which calls for the end of the Israeli occupation of all Arab territories occupied in 1967 and the establishment of an independent Palestinian state with East Jerusalem as its capital in return of normalizing ties with Israel.

"The official and latest Saudi position is that we are prepared to normalize relations with Israel as soon as Israel implements the elements of the Saudi peace initiative that was presented in 2002," Al-Mouallimi said.

He added that once implementing the initiative, Israel will have recognition "not only from Saudi Arabia but the entire Muslim world, all 57 countries of the Organization of Islamic Cooperation".

"Time does not change right or wrong. The Israeli occupation of Palestinian territories is wrong no matter how long it lasts," the diplomat said.

Israel occupied East Jerusalem during the 1967 Arab-Israeli war and annexed the entire city in 1980 in a move that has never been recognized by the international community.

It may be recalled that when United Arab Emirates (UAE) became the first Gulf state to normalize relations with Israel, in a historic US-brokered accord, it raised the prospect of similar deals with other Arab states including Saudi Arabia.

However, Saudi Arabia declared it will not follow UAE in establishing diplomatic ties with Israel until the Jewish state has signed an internationally recognized peace accord with the Palestinians.

But after days of conspicuous silence and in the face of US pressure to announce a similar deal, Saudi Arabia's Foreign Minister Prince Faisal bin Farhan ruled out the possibility until the Palestinian issue is resolved.

Peace must be achieved with the Palestinians on the basis of international agreements as a pre-condition for any normalization of relations, Saudi Arabia's Foreign Minister Prince Faisal bin Farhan told reporters during a visit to Berlin.

“Once that is achieved all things are possible,” he added, in a comment that was consistent with Saudi Arabia's previous stance on the issue.

Prince Faisal's remarks were the kingdom's first official reaction since the UAE's landmark deal with Israel, which was the third such accord the Jewish state has struck with an Arab country after Egypt and Jordan.

Until now, Saudi Arabia had maintained a notable silence over the deal even as local officials hinted that Riyadh was unlikely to immediately follow in the footsteps of the UAE, its principle regional ally.

United States kept pressure on the kingdom, President Donald Trump's son-in-law and adviser Jared Kushner had insisted that it would be in Riyadh's interest to formally establish ties with Israel.

Further putting the kingdom in the spotlight, the then Prime Minister Benjamin Netanyahu said Israel was working on opening a corridor over Saudi Arabia for flights to the UAE.

Saudi Arabia, the Arab world's biggest economy and home to Islam's holiest sites, faces more sensitive political calculations than the UAE.

Not only would a formal recognition of Israel be seen by Palestinians and their supporters as a betrayal of their cause, it would also hurt the kingdom's image as the leader of the Islamic world.

“The notion that Saudi Arabia will be next in normalizing relations with Israel was far-fetched,” said Aziz Alghashian, a lecturer at Essex University specializing in the kingdom's policy towards Israel.

The biggest constraint for Saudi-Israeli normalization is not the fear of a domestic and regional backlash. “Rather, Saudi Arabia deems it necessary not to normalize relations outside the framework of the Arab Peace Initiative that called for resolving the Palestinian issue, if it still wants to be seen as the leader of the Muslim and Arab world,” Alghashian told AFP.

In 2002, Saudi Arabia sponsored the Arab Peace Initiative which called for Israel's complete withdrawal from the Palestinian territories occupied after the Six-Day War of 1967, in exchange for peace and the full normalization of relations.

 

Top of the agenda items of Saudi-US talks

According to Saudi Gazette, US President Joe Biden is scheduled to start an official visit of Saudi Arabia on Friday for the first time since taking office in early 2021. The two-day visit comes at the invitation of King Salman bin Abdulaziz Al Saud.

During the visit, Biden will meet King Salman and Crown Prince Mohammed Bin Salman to discuss aspects of cooperation between the two friendly countries, and the ways to confront the challenges facing the region and the world.

The Saudi visit aims to further strengthen the historical bilateral relations and the distinguished strategic partnership between Saudi Arabia and United States, and the common desire to develop them in all fields.

On Saturday, Biden will attend the first Arab-American Summit of its kind, convened by King Salman. The summit will also be attended by the leaders of the Gulf Cooperation Council (GCC) states, as well as the Jordanian King Abdullah II, Egyptian President Abdel Fattah Al-Sisi, and Iraqi Prime Minister Mustafa Al-Kadhimi. Biden will also hold meetings with these regional leaders before the summit.

US National Security Adviser Jake Sullivan announced on Wednesday that Biden will meet King Salman and Crown Prince Mohammed Bin Salman during his visit to Saudi Arabia. Sullivan confirmed that a “bilateral program” will be held on Friday night, when Biden arrives, and will include King Salman, the Crown Prince and “other ministers in the Saudi government.”

Sullivan revealed that Biden will hold bilateral meetings with a number of regional leaders before the upcoming summit with them, and refused to answer a question about the sequencing of these meetings.

When asked to give an overview of what Biden will say at the GCC +3 Summit, Sullivan said, “President will give broad and strong statements and strategy about his approach to the Middle East.”

He also noted that Biden will discuss security, the economy, and America’s historic role in the region, and his commitment to moving forward with strong American leadership in the Middle East.

Analysts believe that the US president has realistically realized that it is time to break the deadlock in Saudi-US relations, as relations between the two countries were not good since the first day of Biden’s arrival at the White House. Biden’s visit to Saudi Arabia and his upcoming summit in Jeddah are in the interests of the United States in the medium and strategic terms.

They added that the region has become more strategically important to America and the West, with the continuation of the Russian-Ukrainian war, which has entered its fifth month, and the failure of nuclear negotiations with Iran.

It is expected that Biden’s visit will witness signing of some military agreements between Washington and some of the Arab countries to ensure the security of the Arab region, in addition to discussing other vital issues, such as Yemen, Lebanon, Palestine, Libya and Sudan, as well as the security of the Arab region in general.

Analysts said that Biden will seek to clarify the American vision and reassure the Arab countries about the Iranian nuclear agreement, which cannot be predicted about what will happen around it, but there are Arab fears that America knows.

A few days ago, US State Department spokesman Ned Price confirmed his country’s readiness to return to the nuclear agreement, provided that Iran lived up to its commitments.

“If Iran does not respond to negotiations, the chances of reaching an agreement will decrease,” Price said, while stressing the need to return to the nuclear agreement before Tehran acquires a nuclear bomb.

Leaders of the ruling Democratic Party also confirmed that the visit of Biden implies the paramount significance that the American administration attaches to the region, especially in light of the global energy crisis, in addition to trying to fix what can be fixed, and repel the strife that has spread about an imbalance in the American-Saudi or Arab relations.

Iran is, of course, another big and fundamental question in the Middle East. Indeed, it is the question that almost all other questions relate to, from Iraq to Syria, Lebanon, Yemen and Palestine. Biden’s declared policy toward Iran centered around the idea of ​​his administration’s desire to return to the nuclear agreement signed by the Obama administration where he held the position of vice president.

The agreement stipulated that Iran would be subject to monitoring its nuclear program in exchange for the lifting of sanctions, but no significant progress has been made since Biden took office, and negotiations between the United States, major powers and Iran stopped in Vienna months ago. However, it is interesting to note that a quick round of negotiations between Washington and Tehran took place in Doha prior to Biden’s visit.

It is true that the Doha negotiations did not bring about anything, but it came as a reminder that the door for dialogue between the two parties is still open, and the possibilities of returning to the agreement are still in place.

Biden’s visit to the Middle East that kicked off in Israel on Wednesday bears hopes of reuniting the countries of the region to confront common challenges, especially Iran’s nuclear program, which poses an existential threat to more than one country.

Biden’s visit provides an opportunity for convergence of views on other files, including oil supplies, in light of the Russian war on Ukraine. Questions are raised about the extent of this visit’s contribution to ‘forcing’ Tehran to review its rigid position in negotiations over its nuclear program and return to the agreement that concluded with international powers in 2015.

What is Biden's motive to visit Saudi Arabia?

US President Joe Biden will discuss energy supply, human rights, and security cooperation in Saudi Arabia on Friday on a trip designed to reset the US relationship with a country he once pledged to make a "pariah" on the world stage.

Biden will hold meetings with Saudi Arabia's King Salman bin Abdulaziz and Crown Prince Mohammed bin Salman, known as MBS, along with other government officials, a senior Biden administration official told reporters.

The visit will be closely watched for body language and rhetoric. US intelligence had concluded that MBS directly approved the 2018 murder of Washington Post columnist Jamal Khashoggi, while the crown prince denies having a role in the killing.

White House advisers have declined to say whether Biden will shake hands with the prince, the kingdom's de facto ruler.

"The president's going to meet about a dozen leaders and he'll greet them as he usually does," the administration official said.

At the start of Biden's trip to the Middle East, officials said he would avoid close contacts, such as shaking hands, as a precaution against COVID-19. But the president ended up engaging in hand-shaking in Israel.

Biden said on Thursday his position on Khashoggi's murder was "absolutely" clear. Biden made his "pariah" comment less than two years ago after the journalist's killing and while campaigning for president.

Biden said that he would raise human rights in Saudi Arabia, but he did not say specifically if he would broach the Khashoggi killing with its leaders.

Energy and security interests prompted the president and his aides to decide not to isolate the country. The United States is eager to see Saudi Arabia and its OPEC partners pump more oil to help bring down the high cost of gasoline and ease the highest US inflation in four decades.

"The Saudis definitely are intending to boost capacity and with oil prices so high they have the wherewithal to do that, particularly as they see production constraints elsewhere in a market that is still growing," said Daniel Yergin, S&P Global vice chairman and an expert in world energy markets.

Biden will encourage peace and press for a more integrated Middle East during his trip, the official said.

"We will be covering a host of bilateral and regional issues, really capping many months of diplomacy and positioning the United States and our partners for the future in a manner that advances our interests and theirs," he said.

Topics include strengthening a truce in the war in Yemen, "balance" in energy markets and technological cooperation in 5G and 6G, he said.

 

US-Israel joint declaration against Iran

Israeli Prime Minister Yair Lapid and US President Joe Biden signed a joint declaration on Thursday reaffirming the two nations' partnership and cooperation when it comes to Iran, among other topics that they have joint interests in.

The declaration reiterated the US commitment to ensuring that Iran never gets a nuclear weapon and that it is "prepared to use all elements of its national power to ensure that outcome."

The US also pledged to continue to work with partner nations to stop Iran's attempts to destabilize the region both directly and through proxies like Hezbollah, Hamas and the Palestinian Islamic Jihad.

Memorandum of Understanding

The declaration also referred to the US$38 billion MoU on security assistance supplied to Israel by the US that has been signed over the last few decades by consecutive American administrations.

The declaration expressed America's conviction to add a follow-up MoU to "address emerging threats and new realities."

Jerusalem expressed its appreciation of Washington's assistance, and the two countries expressed enthusiasm for moving forward with a close defense partnership.

Abraham Accords

Israel thanked the US for its support regarding the Abraham Accords, and the two allies reiterated the importance of the Negev Forum that met last month in Bahrain. 

The declaration expressed the commitment of the US to the effort of expanding the accords with Saudi Arabia in Biden's upcoming visit over the weekend as well as including further Arab and Muslim countries.

Anti-Israel and antisemitic attacks

The two nations reaffirmed their dedication to fighting against efforts to boycott and delegitimize Israel as well as efforts to unfairly single it out in organizations such as the United Nations and the International Criminal Court.

The declaration also committed to fighting against antisemitism, with the US reiterating its pride of standing "with the Jewish and democratic State of Israel."

Israeli-Palestinian Relations

Regarding the tensions between Israel and the Palestinians, both nations condemned the series of terror attacks in recent months and affirmed "the need to confront radical forces... seeking to inflame tension and instigate violence and terrorism."

Biden reaffirmed his support for a two-state solution and expressed America's readiness to work with Israel and the Palestinian Authority to make a peaceful solution to the tensions possible. 

 

Pakistan: Staff level agreement reached with the IMF

Pakistan has finally reached staff level agreement with International Monetary Fund (IMF) on policies to complete the 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). 

The agreement is subject to IMF board approval, likely in August, which will pave way for the release of US$1.17 billion bringing total disbursement to US$4.2 billion under EFF.

Additionally, in order to support program implementation and meet the higher financing needs in FY23, the IMF Board will consider an extension of the EFF till June 2023 instead of September 2022. The Board will also consider increasing the size of the EFF program to US$7 billion, up from initially proposed US$6 billion.

This support will provide some help as delays in IMF program and policy actions had led to increased economic uncertainty and a continuous decline in foreign exchange reserves.

To recall, 7th and 8th reviews of Pakistan EFF program was initially scheduled in March 2022 and June 2022 but Pakistan was not able to reach Staff level agreement with IMF due to delay in proposed policy actions like removal of petroleum subsidies, imposition of Petroleum Levy (PDL), energy tariff rationalization and increased tax measures.

It is believed that the implementation of key policy actions like increase in energy tariffs (gas and power rates) and other structural benchmarks like gradual increase in taxes on oil and implementation of anti-corruption law will remain key and will lead to IMF’s executive board approval and release of funds. 

IMF in its press release highlighted 5 key policy priorities to stabilize economy and bring policy actions in line with IMF-supported program which includes 1) Steadfast implementation of FY23 budget, 2) catch-up in power sector reforms, 3) proactive monetary policy to guide inflation to more moderate levels, 4) reducing poverty and strengthen social safety, and 5) strengthen governance.

The recently passed budget aims to reduce government’s large borrowing needs by targeting an underlying primary surplus of 0.4% of GDP by restricting expenditures and broad revenue mobilization measures.

Relating to power sector reforms, IMF noted that due to weak implementation of the previously agreed plan, the power sector circular debt flow is expected to grow significantly to about Rs850 billion in FY22.

Furthermore, adjustment in monetary policy and linkages of EFF and LTFF rates with policy rate remain the key given rising inflationary pressures. Government is also establishing a robust electronic asset declaration system and plan to undertake a comprehensive review of the anticorruption institutions (including the National Accountability Bureau).

IMF stressed that “Steadfast implementation of the outlined policies, underpinning the SLA for the combined seventh and eighth reviews, will help create the conditions for sustainable and more inclusive growth”.

It is believed that Pakistan economic situation will remain challenging due to uncertain global economic and financial market conditions along with local political situation.

Pakistan need to arrange funding up to US$35 billion during FY23 which is big task considering rising interest rates and risk averse attitude around the world.

There are expectations that few friendly countries like China, Saudi Arabia will continue financial support to Pakistan after IMF deal.

Furthermore, Pakistan is also expected to receive financing from other Bi-lateral and Multi-lateral donor agencies that could provide some support to reserves of the country.    

Moreover, after ousting of the previous Khan government through a no confidence motion, the PML-N led coalition government will be going into elections next year whereby it will be difficult to take all much needed reforms.

Though, the recently announced measured by the new government in Pakistan will help stabilize the economy and reduce fiscal and current account deficit, the overall investor confidence will remain below average.

Pakistan Eurobond yields are now at 20%-32%, local lending rate is at 20 year high of 15.87% while Pakistan stocks are down 6% (US$ down 21%) in 2022 to date.

This new IMF deal may help in some recovery of Pakistan dollar bond prices but considering the overall global interest rate environment and Pakistan rising debt a strong recovery may not come.

Similarly, Pakistan stocks may react slightly positively to this news but given Pakistan’s high lending and policy rates & other challenges like high inflation could continue to impact stock market sentiments.

Recently in its monetary policy statement SBP also highlighted key risks like high global commodity prices, rising inflation and increasing external account concerns that remain critical for Pakistan economic outlook.   

Analysts expect FY23 GDP growth of maximum 4% against government target of 5% and estimate CPI inflation around of 19% in FY23.

Global energy prices also remain the key for Pakistan. In FY22, oil and LNG imports are estimated at US$22 billion which was 27% of total import bill. A sustainable fall in oil, coal and LNG prices can provide some support to Pakistan external account.

 

Bangladesh: IMF team arriving on Thursday

A delegation from the International Monetary Fund (IMF) is scheduled to reach Dhaka on Thursday on a nine-day trip to discuss the government’s request for a US$4.5 billion support program.

Rahul Anand, Division Chief in the IMF’s Asia and Pacific Department, will lead the team during talks with the senior officials of the Finance Ministry, the central bank, the National Board of Revenue and the Economic Relations Division.

If everything proceeds smoothly, the loan deal could be finalized by October this year, said an official of the Finance Ministry yesterday.

The request for IMF support comes to shore up the precarious foreign currency reserves, which slipped to US$39.8 billion — the lowest since October 14, 2020. This is enough to cover about five months’ import bills.

Typically, the World Bank and the IMF prescribe an import cover of three months, but in times of economic uncertainty, they advise keeping sufficient reserves to meet 8-9 months’ imports.

Going forward, even though imports are slowly contracting, the elevated inflation levels around the world mean the odds of a slowdown in both remittance inflows and export orders, two sources of foreign currency for Bangladesh.

The IMF officials will look into the impacts of the Russia-Ukraine war and escalated global commodity prices on the Bangladesh economy, the status of recovery from the global coronavirus pandemic and the government’s large subsidy program.

They will see whether the subsidy spending is justified and compare it with the other countries. If it is deemed excessive, the IMF mission may suggest ways to trim it.

Subsidy spending in the just-concluded fiscal year is Tk 66,825 crore, 24.1% more than the original allocation thanks to the spiral in fuel and fertilizer prices in the global market.

In this fiscal year’s budget, Tk 82,745 crore has been earmarked for subsidy.

But considering the price trend of oil, gas, and fertilizer in the international market, the estimated spending can be 15-20% higher than the initial estimates, said Finance Minister AHM Mustafa Kamal in his budget speech in June.

The conditions could include measures to increase revenue, lower subsidy expenditure, market-based exchange rate and lending rate, and reforms in the banking sector and tax administration, the Finance Ministry official said.

Bangladesh has unveiled a relatively smaller budget for the current fiscal year, put on hold low-priority projects, suspended foreign tours of government officials, adjusted the prices of gas and diesel to some extent, and loosened the exchange rate policy.

The government has also signalled that it may raise the price of fuel oil and has proposed to the Bangladesh Energy Regulatory Commission to increase the electricity tariff to cut the subsidy burden.

Surjit Bhalla, Executive Director of the IMF for India, Bangladesh, Bhutan and Sri Lanka, who represented Bangladesh on the board of the Washington-based lender, is also set to visit Bangladesh separately.

 

Israel to push Biden on trade corridor connecting Israel and Gulf

“Corridors for Economic Integration”

A new highway and railway system throughout Israel, Jordan and Saudi Arabia could facilitate tens of billions of dollars in trade, according to a special paper prepared by the Finance Ministry ahead of US President Joe Biden’s visit to Israel.

The paper was drafted by Shira Greenberg, the ministry’s chief economist, under the direction of Finance Minister Avigdor Liberman. Government officials said that Liberman met in recent days with Prime Minister Yair Lapid to ensure that its main points would be brought up in talks with Biden during his visit to Israel, which begins on Wednesday and will end on Friday.

The paper – obtained by The Jerusalem Post and prepared in English so it could be shared with the Biden administration – pushes for a new plan called “Corridors for Economic Integration” that would create a regional transportation network including railways and highways linking Israel with Jordan, Saudi Arabia and the Gulf.

“By creating a direct connection between the Gulf and the Mediterranean, the network will allow for dramatically shorter shipment times between East and West,” the paper claims. “The project thus has the potential to facilitate trade on both a regional and global level, in addition to enhancing regional economic cooperation.”

Some sections of the network are already in stages of development, according to the paper. In Israel, a railway runs from the port of Haifa to Beit She’an, which is only 10 km. from the border with Jordan.

In Saudi Arabia, the North-South Railway links the east and center of the country with the north, all the way up to the border with Jordan.

In the Gulf, a railway under development there is being planned to connect those of all Gulf countries, in particular railways in Saudi Arabia, the United Arab Emirates and Bahrain.

“By creating a direct connection between the Gulf and the Mediterranean, the network will allow for dramatically shorter shipment times between East and West.”

The distance, the paper said, of the “missing link” – between the Saudi-Jordanian border and the crossing between Israel and Jordan where the railway almost reaches – is just 200 kilometers.

The network, the paper claims, could facilitate trade between the Gulf, Europe, North Africa and the east coast of the Americas. “The existence of numerous relevant and significant trade flows is expected to provide the project with robust demand – as traders in all relevant countries will seek to take advantage of reduced shipment times and direct access to regional markets,” it says.

In the paper, the Finance Ministry calls on the Biden administration to take the reins of the initiative and to bring all of the relevant stakeholders together to facilitate its success.

“While preliminary analyses have shown the project’s potential, a full cost-benefit analysis carried out on behalf of all involved parties by an experienced international partner could also help the sides decide on the next steps,” it says. “We believe that the current positive atmosphere of regional cooperation will allow us the opportunity to move forward in these regards.”