Will Hamas-Israel war derail Saudi Arabia's ambitious plans?

Five years ago, speaking in front of an attentive audience in the glitzy Ritz Carlton hotel in Riyadh, Saudi Arabia's ruler, Mohammed bin Salman, said he believed the Middle East could be the "new Europe."

"The next global renaissance, in the next 30 years, will be in the Middle East," the autocratic leader said in 2018, at the second iteration of the Saudi-run investment conference the Future Investment Initiative, or FII.

"This is the Saudis' war. This is my war," he continued. "I don't want to leave this earth before I see the Middle East at the forefront of the world."

Bin Salman went on to present Vision 2030, a wildly expensive and ambitious plan to diversify the Saudi economy away from oil. At the time, his speech was met with applause and a standing ovation — despite the fact that many Western attendees had already withdrawn from the event over the murder of Saudi dissident Jamal Khashoggi.

At this year's Future Investment Initiative, however, an actual war was weighing heavily on the meeting because the Israel-Hamas conflict and its consequences have the potential to disrupt the oil-rich Gulf state's visions for its future.

The investment conference in Saudi Arabia, which ran from Tuesday to Thursday, is the seventh iteration of the FII, often nicknamed "Davos in the desert" after the global summit of world leaders and bankers held annually in Davos, Switzerland.

Despite the ongoing conflict in Israel and Gaza, around a thousand kilometers away, only a handful of attendees canceled, the organizers said.

In Riyadh this week were some of the world's best-known and wealthiest financiers. That included heads of leading investment funds and banks like BlackRock, Blackstone, Citigroup, Goldman Sachs and JP Morgan Chase. Deals worth billions were expected to be done during the event.

The first of those was announced on Tuesday: A $500 million (€470 million) plan for the Saudi sovereign wealth fund, the Public Investment Fund, or PIF, to invest in a car factory in Saudi Arabia together with South Korean automaker Hyundai.

War "overshadows everything else"

It made sense to be there despite what was happening in Gaza, Karen E. Young, a senior research scholar at Columbia University's Center on Global Energy Policy, told DW.

"Investors paid a lot to attend the conference. [They] see Saudi and the PIF as a major source of investment and opportunity," she pointed out. "There is simply interest to try and understand how the Gulf states and their sovereign funds will maneuver in this crisis."

The topic of the latest Gaza conflict was not to be avoided, though.

After the Hamas militant group killed over 1,400 people in brutal terror attacks on Israel on October 7, the Israeli military has been bombing the Gaza Strip, one of the most densely populated places on earth. An estimated 6,000 Palestinians, almost half of them children, have so far been killed by the ongoing Israeli bombing, according to Hamas-run health authorities in Gaza. The death toll continues to rise.

What was currently going on in Gaza "overshadows everything else," The Wall Street Journal quoted Saudi Arabia's Minister of Investment Khalid al-Falih as saying. "But for their good and for the good of humanity, we have to keep the compass focused on the prosperity of our people." 

Citibank chief executive Jane Fraser said it was hard not to be pessimistic given the circumstances, and BlackRock boss Larry Fink suggested fighting in Ukraine and Gaza would lead to greater societal insecurity and, therefore, less hope. That, in turn, would weigh heavily on consumer sentiment and eventually slow economic growth, he argued.

In the shorter term, the biggest potential economic problems the conflict in Gaza could cause involve oil and gas supply and prices, economists have said. In a worst-case scenario, in which the conflict spreads beyond Israel, oil prices could rise to as much as $150 a barrel, analysts at Bloomberg wrote this week. Prices are currently at around $90 a barrel. This would lead to more inflation and slow growth.

Other more immediate risks include increased refugee flows, rising insurance costs and a threat to countries in the region dependent on tourism income.

Risks to new EU trade route

Another project at risk is the recently announced India-Middle East-Europe Economic Corridor, or IMEC, a trade corridor that would link India to Europe via the Middle East.

Saudi Arabia, the United Arab Emirates and Israel have all signed a memorandum of understanding on the trade corridor, as have a number of European countries and India.

This would not have previously been possible because of bad relations between Israel and Saudi Arabia. But before October 7, a normalization of relations between Saudi Arabia and Israel appeared to be coming closer. Normalizing with Israel fits in with Saudi Arabia's future plans because it would allow access to Israeli technology, a possible defense deal with the United States and potential permission for its own civilian nuclear program.

The IMEC would also play an important part in closer cooperation with Israel, and the Saudis had already pledged to spend $20 billion (€19 billion) on the new trade route.

"The efficient flow of goods and capital across the western Indian Ocean to the eastern Mediterranean is a geopolitical game changer that could involve other nations in the future," Michaël Tanchum, a senior fellow at the Austrian Institute for European and Security Policy, told DW about IMEC. 

However, after the October 7 attacks and the start of Israel's bombing, Saudi Arabia said it was halting the Israel normalization process.

And the IMEC could become collateral damage, Herve Delphin, the European Union's envoy to India, told Indian media this week. "The question is whether it's a temporary collateral or permanent collateral," he said, adding that this would depend on whether the conflict escalates.

Pragmatism rules in Saudi Arabia

But will any of this put a permanent dent in Saudi Arabia's ambitious plans?

The Saudi crown prince has previously argued that regional stability is necessary to achieve Vision 2030. And "the war is a threat to his vision of a new Middle East, as a center of outgoing investment, of integrated tourism and trade," Young agreed.

But like many other observers, Young also believes that while the Saudi-Israel normalization process is stalled due to the Gaza conflict, it is not dead.

"Israel and Saudi Arabia still have shared interests, especially in seeing Iran as a threat," she explained. "The tension for Saudi Arabia now is balancing its domestic public opinion with its economic diversification and regional aspirations. That was true before October 7 and is even more challenging now."

On the second day of the FII, Saudi Finance Minister Mohammed al-Jadaan told conference attendees that his country didn't want the Gaza conflict to derail Saudi plans. "So we are making a lot of efforts with our partners to make sure we go back to where we were," he said.

"The Saudi leadership understands that the Palestinian cause still weighs in its domestic and international clout, in its bargaining with the US, and its rivalry with other Islamic players," Yasmine Farouk, a nonresident scholar in the Middle East Program at the Carnegie Endowment for International Peace wrote earlier this month.

Despite this, Farouk concludes, the Saudis are likely to be more pragmatic in the near future and will lean towards building a regional consensus.

"The last thing that Saudi Arabia wants is such a regional disorder that disrupts the progress of its Vision 2030 megaprojects and development plans," she concluded.

Edited by: Andreas Illmer