Forecasting the Middle East for 2023

At the start of last year, trendlines in the Middle East pointed to a cautiously optimistic trajectory. Regional states were engaged in a process of de-escalation after a period of heightened tension, and several economies were showing signs of a post-pandemic recovery. 

As the Middle East enters 2023, forecasts for the region present a decidedly more mixed assessment. The cumulative spillover effects from Ukraine have significantly complicated the region’s geopolitics and dampened prospects for economic recovery. Across the region, there are worrying signs of socioeconomic stress, giving rise to political discontent. And while key regional powers have avoided confrontation, the region’s conflicts remain unresolved and prone to escalation. 

A Battleground for Great Power Competition

Russia’s military intervention in the Syrian civil war in 2015 marked the return of great power politics to the Middle East. Since then, the region has featured as a key arena for the shifting dynamics of global competition between Russia, China and the U.S. 

Two key developments in 2022 revealed the complexities of these dynamics. The first was the growing strategic cooperation — bordering on military partnership — between Russia and Iran with respect to the conflict in Ukraine. Iranian supplied Shahed drones made their debut in the conflict as part of Russia’s aerial assault on Ukrainian cities. Reports showed that Russia was ready to reciprocate by selling its advanced SU-35 fighter to Iran. 

Taken together, these moves are part of a broader trend revealing the extent of Middle Eastern involvement in the Ukraine war. Turkey has supplied its Bayraktar drones to Ukraine, while at the same time offering to act as a mediator between both sides. Similarly, both Saudi Arabia and Iran have offered to broker ceasefires and prisoner releases, with the latter acting as a safe haven for Russian money and oligarchs seeking to circumvent international sanctions. 

Fraying of America’s Alliances

The second major development was the visible fraying of America’s alliance relationships in the region, in particular with the Gulf, against the backdrop of China’s rising influence. In this regard, 2022 provided what could be viewed as a tale of two summits. 

The trajectory of rising discontent driven by economic pressures is the other critical development to watch. Whether such discontent leads to a renewed wave of Arab-spring-like movements against incumbent regimes, or remains as isolated cases of protest is difficult to predict, however.

President Biden’s June summit with Arab leaders in Riyadh attempted to signal America’s reengagement with the region after a period of benign neglect with the administration having prioritized its post-COVID economic recovery and addressing the challenge from China. However, the summit failed to allay mounting concerns on the part of its Gulf allies regarding its diminishing commitment to uphold their security in the face of Iran’s growing threat. 

More importantly, Gulf oil producers failed to oblige America’s entreaties to increase oil production in order to stabilize global energy markets after Russia cut off gas supplies to Europe. The decision by OPEC+ to cut oil production was interpreted by the administration as a rebuff by Saudi Arabia further straining an already troubled relationship. 

All of this provided a stark contrast to the deference and fanfare accorded to Chinese President Xi Jingping during a series of summits hosted by Riyadh in December of last year (China-Saudi, China-Gulf, and China-Arab). The package of energy, trade, technology, and business deals that were signed represented the culmination of a steady rise in Sino-Arab relations over the previous decade. How these dynamics play out will be a key determinant of regional politics in the year ahead. 

A Fragile De-Escalation

A rare bright spot in the region’s conflict landscape is a concerted effort by Middle East actors to de-escalate their regional tensions; Turkey has engaged in a diplomatic charm offensive to break out of its regional isolation; both Saudi Arabia and the UAE have engaged in process of exploratory dialogue with Iran; the U.S. and Iran have avoided escalation despite their failure to renew the Joint Comprehensive Plan of Action (JCPOA) to limit Tehran’s nuclear program; and the Arab states and Israel have institutionalized the process of normalization enshrined in the Abraham Accords in the form of the Negev Forum held in Israel in November of last year. 

This came after a dangerous phase of escalation that brought the region to the brink of war on several fronts. The current de-escalation has anchored a series of fragile cease-fires across the region. However, the underlying sources of these conflicts have not been addressed. 

With the collapse of the JCPOA process, deterrence has now replaced diplomacy, with the U.S. issuing a series of stark warnings that it will not allow Iran to cross the nuclear threshold. Where exactly that threshold lies is likely to be a source of dispute between the U.S. and Israel, with the latter arguing for military action to prevent Iran’s stockpiling of nuclear material, whereas Washington argues that the military option should only be used to prevent Iran’s acquisition of actual nuclear weapons. 

In Syria, Russia’s drawdown of its military assets due to the pressures of the conflict in Ukraine have diminished its ability to regulate the conflicting interests of Iran, Turkey, and Israel in the Syrian civil war. Conversely, Moscow’s alignment with Iran will likely diminish its ability (and perhaps desire) to limit Iran’s growing presence in southern Syria, thus paving the way for a potential escalation in the ongoing confrontation between Israel and elements of Iran’s Revolutionary Guard Corps (IRGC). 

In Israel, elections brought back Benjamin Netanyahu to the prime minister’s office heading the most right-wing coalition in Israel’s history. The new government’s guidelines document espouses a thinly veiled ideology of Jewish supremacy and a series of provocative policies toward the Palestinians, including legalization of informal settlements in the West Bank and annexation of Palestinian territories to Israel, which greatly increase the prospects of violence. 

Having been pushed to the back-burner of Middle East politics, the Israeli-Palestine conflict is likely to reemerge as a major regional conflict flashpoint, possibly derailing — or at least slowing down — the current process of normalization with key Arab states.

Rising Socioeconomic Stress

Recent economic projections for the region have consistently been revised downward, while highlighting growing signs of socioeconomic stress in several regional economies. After reaching a growth rate of 5.7% in 2022 — the highest for the MENA region in over a decade — the forecast for the coming years is one of more modest growth, projected at 3.5% for 2023, and 2.7% for 2024. 

The effects of this economic slowdown will be felt unevenly throughout the region. For the region’s oil producers, the slowdown in growth — from a high of 6.7% last year to an average of 3.5% in 2023-24, driven mostly by declining oil revenues as a result of OPEC+ production cuts — will be mitigated by large external and fiscal surpluses, lower inflationary pressures, high oil prices in comparison to pre-COVID levels, and significant growth in non-oil economic sectors. 

In contrast, the region’s non-oil economies are showing mounting signs of economic stress. Real GDP growth for hydrocarbon importers is projected to decelerate from 4.2% (2022) to 2.9% for the coming year. 

The growing downside risks associated with this assessment can be seen in the signs of growing discontent across the region. Recent strikes in Ma’an Jordan over fuel prices, anti-regime protests in Syria over worsening living conditions, and demonstrations in Tunisia and Morocco against high cost-of-living could be a portent of things to come. The risks associated with Egypt’s economic reform program linked to its recent $3 billion loan agreement with the IMF also highlight the significant policy challenges facing governments in addressing these conditions. 

Developments to Watch in 2023

Given the economic spillover effects of the conflict in Ukraine, especially for the region’s food security, a critical factor will be the sustainability of the Black Sea Grain Agreement brokered by Turkey and the U.N. allowing for the resumption of Ukrainian wheat. Collapse of the agreement could have major repercussions for regional economies already suffering from the fallout of the war. 

The trajectory of rising discontent driven by economic pressures is the other critical development to watch. Whether such discontent leads to a renewed wave of Arab-spring-like movements against incumbent regimes, or remains as isolated cases of protest is difficult to predict, however.  

Overall, the trend lines for the Middle East point to an assessment of “cautious pessimism.” Geopolitical and economic risk factors are on the rise. However, the previous years have shown that the region has the ability to pull back from the brink. For the Middle East, that may be good enough.

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