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Middle East and North Africa: Trade and Investment Relations with the United States and Implications on American Foreign Policy

July 11, 2017

The Middle East and North Africa region is considered one of the most politically unstable regions in the world, yet the region has always had extreme significance in foreign affairs as a result of its great economic potential. 

The countries that officially make up this region are Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, and Yemen; most of these countries are either allies of the United States or have had a significant American presence, particularly a military presence, as a result of international security threats. This region has always had a high potential value in terms of U.S. commercial and foreign policy interests, especially as economic development, supported through enhanced trade and investment ties, have consistently been viewed as an effective means of advancing American goals of peace and stability in the region [1].

History of Trade and Investment Relations with MENA

Immediately following World War II, the United States dramatically increased its presence in the region with trade and investment reaching approximately $2 billion annually, particularly due to petroleum investments. By 1979, U.S. exports to the Middle East had increased to approximately $15 billion, with imports reaching around $19.5 billion. The majority of trade was concentrated in oil exporting countries, with 80% of U.S. exports going to these countries and 95% of imports being received from these countries [5]. Trade and investment in the Middle East and North Africa region have been major contributors to stability, particularly as a result of the many conflicting interests within the region and the international community.

Figure 1: A map of the countries that make up the Middle East and North Africa region. Source: Department of State.

Figure 1: A map of the countries that make up the Middle East and North Africa region. Source: Department of State.

In order to enhance these trade and investment ties, the U.S. employs multiple tools of economic diplomacy: Qualifying Industrial Zones (QIZs), Trade and Investment Framework Agreements (TIFAs), and Federal Trade Agreements (FTAs) [2]. The U.S. has sought Free Trade Agreements, such as with Jordan, Israel, Morocco, Bahrain, and Oman, and Trade and Investment Framework Agreements with various states within the region. The objective of these agreements is to increase American exports while assisting with the development of intra-regional economic ties [1]. These trade agreements have greatly increased the region’s importance in American economic policies, as the countries in the region, together, would rank 4th as an export market for the United States with exports to the region counting for 5.1% of overall U.S. goods exports in 2008 [1].

Furthermore, the region would be considered the 5th largest supplier of imports to the United States economy, with 6.6% of imports originating from the region in 2008. The majority of exports were machinery, vehicles, and aircraft, while the majority of imports were fuel, oil, precious stones, and machinery [1]. As a result, it appears that the primary significance for the Middle East and North Africa region in regards to trade is to import sources of energy and to export armaments and machinery.

Foreign Policy Objectives

            The Middle East and North Africa region has been a focal point of American foreign policy for decades, and many have attributed this focus to the fact that this region accounts for more than 66% of the world’s proven global oil reserves [3]. Additionally, most of these reserves, are concentrated in Persian Gulf states, such as Saudi Arabia. The region has countless advantages as a dominant oil and gas producer and exporter due to the low production costs and its strategic location near large consuming markets [6]. As a result, many of our policies in the region were driven by the need for oil and natural gas supplies. In 1979, the U.S. Department of Commerce stated that trade with the region was unsettled and unstable, especially due to the negative reaction to the agreements between Israel and Egypt throughout the rest of the region [4]. Despite this, the United States has remained a major military presence within the region and is a principal supplier of arms to various countries. The United States benefits greatly from this trade as a large portion of the GDP’s of MENA countries is military expenditures [4]. Israel’s security, in particular, is extremely important for our trade and investment relations as we provide $3 billion in military financing annually, in addition to joint military exercises, military research, and weapons development [6]. The economic support provided by trade and investment in the region prevents poverty and instability, which can create a breeding ground for militancy, political violence, and extremism, and the hostility is often directed towards the West and the United States [3]

Figure 2: This graph demonstrates the oil production and imports of the United States. The dramatic increase in production and decrease in net imports demonstrates the decreasing dependence of the United States on the oil reserves held by the MENA region. Source: Wikimedia Commons.

Figure 2: This graph demonstrates the oil production and imports of the United States. The dramatic increase in production and decrease in net imports demonstrates the decreasing dependence of the United States on the oil reserves held by the MENA region. Source: Wikimedia Commons.

Future Economic and Strategic Relations with the Middle East and North Africa

             The Middle East and North Africa region remains significant in American economic and foreign policy. Presently, the United States has gained greater bargaining power over developments in the region as a result of the use of fracking, which has effectively reduced dependence on the region. In fact, the IEA predicts the United States could surpass Saudi Arabia as the largest oil producer in the world by 2020 if we continue on its current course of action [6]. Due to this, the U.S. economy is less vulnerable to political and economic upheavals in the Middle East and North Africa, providing greater freedom in pursuing economic and strategic objectives. The Middle East and North African, as a result, have looked towards the international community, especially in Asia, for exporting oil. The G7 countries have also sought relationships with various states within the region, such as Turkey, Algeria, or Iran, in order to strengthen investment relations [7]. The United States, despite its reduced dependence on the region, remains heavily involved in the region through its economic and foreign policy.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1] “Middle East/North Africa (MENA)”. 2017. Ustr.Gov. Accessed June 18 2017. https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa. 

  [2] Al Khouri, Riad. 2008. EU and US Free Trade Agreements in the Middle East and North Africa. No. 8. Washington: Carnegie Endowment for International Peace.

  [3] Habibi, Nader, and Eckart Woertz. “US-Arab Economic Relations and the Obama Administration.” Middle East Brief 34 (2009).

  [4] Campbell, Robert M. “Effects of Peace in the Middle East on Trade with the United States.” Case W. Res. J. Int’l L. 12 (1980): 27.

  [5] MAREI, SAYED. 1980. A look at united states trade and investment in the middle east and egypt in particular. The International Lawyer 14 (1): 167-70.

  [6] Bahgat, Gawdat. 2014. “The Shale Gas and Oil “Revolution”: Strategic Implications for United States Policy in the Middle East.” The Journal of Social, Political, and Economic Studies 39 (2): 219-231.

  [7] Abid, Fathi, and Slah Bahloul. 2011. Selected MENA countries’ attractiveness to G7 investors. Economic Modelling 28 (5): 2197-207.

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