One year on

13 September 2002

At the height of the Cold War, Chinese premier Chou Enlai was asked by a western journalist to offer an opinion on the historical importance of the 1789 French Revolution. There was a lengthy pause before he replied: 'It is still a little too early to say.'

Twelve months after the 11 September terrorist attacks on the World Trade Centre and the Pentagon it is too early for a full assessment of the impact of the events on the Middle East, but some preliminary observations can be made.

The first is that the forecasters of doom were wrong. The US did not launch a knee-jerk, unfocused military strike into any Middle Eastern state and there was no descent into regional war. Equally, as MEED stresses in its Cover Story this week, there has, so far, been no decisive unilateral action from the US that could lead to the collapse of the post-Cold War order of international relations, as many were predicting only months and weeks ago.

But the events of 11 September have had a profound impact on the Middle East. Most importantly - though far from played out - the nature of relations between many of the region's states and the US have been revised. Much of the rhetoric that has flowed from Washington, and the hectoring of the US media, has been perceived as anti-Arab and anti-Islamic. Coupled with President Bush's declaration of a 'war on terrorism', his 'axis of evil' speech targeting Iran and Iraq and repeated statements that governments had to choose whether they were with the US or with its opponents, relationships have been strained.

Although not directly related to the 11 September strikes, the White House's call for 'regime change' in Iraq is a key aspect of the aftermath. The call has been unequivocally rejected by Arab leaders, few of whom have been reticent in condemning any proposed military action. It remains to be seen whether the US shift towards a multilateral strategy, or even a UN resolution sanctioning action in Iraq, would bring any significant change in Arab attitude. The drift towards polarisation may not have been completed but it has been considerable.

Much of the momentum for regional anti-US sentiment has come from the dramatic deterioration of the situation in Israel and the occupied territories. Tel Aviv has been adept at exploiting US anti-terrorism rhetoric and has used it to justify escalated military action in areas controlled by the Palestinian Authority. The tacit support of the US has given Prime Minister Ariel Sharon enough room for manoeuvre to effectively destroy the regime of Palestinian leader Yasser Arafat. Israeli actions have been compounded by US calls for a change in the Palestinian leadership: anti-US sentiment throughout the Arab world has been further inflamed.

There has been missed opportunity elsewhere. In the immediate aftermath of the terrorist strikes, co-operation with Tehran - there was shared interest in toppling the Taleban, sealing Afghanistan's borders and preventing any overspill - opened the door to potential rapprochement between the US and Iran. The door was slammed shut with Bush's decision to mark Iran as a terrorist state. However, regional repositioning has led to an acceleration in the thawing of relations between Iran and the other states of the Gulf.

The most important shift has been the damage done to US-Saudi Arabian relations. The participation of Saudi citizens in the 11 September attacks, although strongly condemned by the government, opened up a line of particularly hostile anti-Saudi sentiment in the US press - a line taken up by some members of the government. Accusations of enmity, lawsuits against prominent Saudi citizens and institutions and the denial of visas to young Saudis have palpably damaged the US' image in the kingdom. Prominent Saudis say they feel betrayed by a country they considered their closest ally and express concern for future relations. However, they maintain that in the longer term relations will remain strong, and point to the ineffectiveness of the boycott of US goods as evidence that the greatest damage is hurt feelings, feelings that will one day heal. Nevertheless, the possibility remains that the US' oldest ally in the region may cease to be just that.

On the economic front, the doom-mongers were also too hasty. Yes, those regional economies reliant on tourism revenues have been hit, but the blow has been less heavy than expected. And the predicted mass exodus of international businesses from the region has not materialised. In fact, the economic impact of 11 September has been far less severe in the Middle East than in many other parts of the world where integration into the global economy is more advanced.

In the face of a decline in oil prices in the three months after 11 September, deepened by the political use of increases in Russian output, OPEC held firm and prices quickly recovered, pushing past $20 a barrel in the New Year and breaking the $25 barrier in the spring: they look set to average about $24 a barrel this year. The higher-than-expected revenues have proved a tonic for many regional governments and economies. Capital expenditure has remained strong, infrastructure projects have largely remained on track and MEED forecasts healthy real gross domestic product (GDP) growth in 2002 in most Arab states. This confidence is reflected in the surge of regional stock markets since the start of the year, though some of the increases may have been fuelled by Arab investors exiting US markets and reinvesting at home.

However, there has been a price. The region has found itself less attractive to international investors and anecdotal evidence suggests the flow of foreign direct investment (FDI) has slowed.

The political take on major economic issues has also been skewed. The privatisation process in Egypt has ground to a halt, and the reform programme in Saudi Arabia has been slowed and altered. The attractions of selling perceived strategic interests to foreign investors have declined as tensions have risen. In Saudi Arabia, the anticipated culling of the negative list, which details those sectors in which foreigners may not invest, has not taken place. Perhaps most importantly, the $25,000 million Saudi gas initiative, to which five US oil companies had signed up, has become increasingly politicised and effectively cancelled.

As with the political fallout, the full economic impact is still undecided. One thing is certain. The Middle East will play a pivotal role in America's attempts to create a new world order out of the chaos of 11 September. But the gap between the Arab world and the US, which was already growing, is now growing faster. One year into its war on terrorism, Washington has already lost one of the first battles, the battle for the hearts and minds of the people of the Middle East.

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