The Middle East stands at a crossroads between two futures

The GCC countries — particularly Saudi Arabia, the UAE, and Qatar — have implemented economic policies aimed at diversifying and modernising their economies, attracting inward investment, and expanding their business interests worldwide.

Qatar successfully bid to host the 2022 football World Cup — a first for a region that has typically been behind Europe, South America, and Asia in its recognition at the highest levels of the sport.

The UAE has made strategic investments abroad, signing a significant partnership with the UK and investing in ports across Africa.

Perhaps most ambitious of all, Saudi Arabia launched its Vision 2030 programme in 2016, promising economic development and diversification, investment and prosperity, and cultural and social modernisation. In 2018, Crown Prince Mohammed bin Salman predicted: "A renaissance in the next 30 years will be in the Middle East."

The programme has seen radical changes in the country, with a side-lining of the Islamic conservative clerical establishment opening the way for social and cultural changes such as the legalisation of women driving and the embrace of entertainment such as cinema and music.

At the same time, the country is investing in sports and culture. It has opened itself up to tourism, issuing visas and embarking on ambitious campaigns showcasing its potential as a location for travel and leisure.

Read more: The promising future of Arab tourism

Massive building and development projects have put spades in the ground in creating brand-new cities such as NEOM, with radical architectural and civic designs promising convenience, renewable energy and a new way of urban living.

Saudi Arabia is positioning itself as a leader in the region's economic growth, hosting the Future Investment Initiative each autumn, gathering the world's biggest financiers, investors, and businesses in Riyadh to make deals, and expanding regional economic growth.

Saudi Arabia has just won its bid to host the World Expo in 2030 to showcase technological and climate change developments.

Diplomacy moves

This economic activity is coupled with diplomatic steps forward to create a more stable Middle East, meeting states' national security interests and seeking to create a regional political environment that is most conducive to inward investment and lasting prosperity.

Saudi Arabia has resolved diplomatic disputes with Qatar and Turkey, resumed ties with Iran and has sought a resolution to the ongoing war in Yemen. Meanwhile, it has developed ties with powers outside the Middle East, such as China and Russia, with Beijing sponsoring this year's rapprochement with Iran.

Seeking a role of greater regional leadership, Saudi Arabia has hosted several summits in the last two years, including convening a meeting between Arab leaders and President Xi in 2022 and holding talks this year in Jeddah in an attempt to move towards peaceful solutions to the wars in Ukraine and Sudan.

The recognition that peace and stability in the region are crucial for the Middle East to reach its potential has led many states to seek to improve relations with Israel.

The UAE, Bahrain and Morocco made significant progress through the US-brokered Abraham Accords. This agreement normalised relations with Israel in return for US diplomatic concessions such as recognition of Morocco's claim over Western Sahara, as well as paving the way for greater economic ties and developments between signatories.

US-Saudi negotiations and Israel

Saudi Arabia also recognises the importance of international agreements and regional cooperation in creating an environment that is most suitable for advancing its strategic political and diplomatic goals. A key tenet of this diplomatic activity has been its negotiations toward a general agreement with the US.

The Biden administration, upon arrival in the White House, pursued a colder approach in its relations with Saudi Arabia than the Trump administration that preceded it. Military assistance for Riyadh's campaign in Yemen dried up, and intelligence cooperation diminished.

However, after the Russian invasion of Ukraine and disruption in global energy markets, the US sought to reassess its relationship with Saudi Arabia, leading President Biden to visit Riyadh in July 2022.

In the years leading up to the 7 October attacks, it was understood that the US and Saudi Arabia were undergoing negotiations around a possible defence treaty or formal alliance between the two states.

The US sought to maintain Saudi Arabia as a reliable energy and diplomatic partner in the region in return for Saudi demands focussed around three main issues, all essential to pursuing the modernisation and economic development drive that has been the focus of the Crown Prince.

Firstly, Saudi Arabia sought NATO-style security guarantees from the US similar to those with other US allies such as South Korea and New Zealand.

The Kingdom had believed that the presence of US military bases would safeguard its civilians and infrastructure, but attacks from groups such as the Houthi rebels in recent years proved the need for more substantial formal guarantees.

Secondly, Riyadh is also seeking to develop a civilian nuclear programme to help transition from dependency on oil and gas. Motivated by national security concerns, Saudi Arabia wants to follow in the footsteps of other US allies and retain the right to produce enriched uranium in collaboration with the US.

The final key part of the deal is the US and Saudi cooperation in playing a more proactive role in working for a peaceful solution to the Israel-Palestine crisis.

Saudi Arabia seeks a political solution to the question of Palestinian statehood and conflict with Israel, a two-state solution that forms the basis of general international consensus.

To maintain such a resolution, Washington would expect Saudi Arabia to pursue normalisation with Israel in exchange for its support in such an agreement.

Though all areas of a potential US-Saudi deal are difficult, it is the latter that is the most complex.

Saudi Arabia has supported the Palestinian cause since Israel's creation displaced 750,000 Palestinians from their land in 1948, and whilst it made many plans for peace between the Arab states and Israel, it has held a pro-Palestinian stance in international negotiations and summits ever since.

It is also aware that its regional power status is unique in the region. Its membership in the G20 and economic influence put it in a significant position on the world stage.

Its role in safeguarding the two most holy sites in Islam gives it a religious, geopolitical authority in the Muslim world, which complements its potential function as a facilitator of other Arab countries' normalisation with Israel.

Read more: On the normalisation question

To Saudi Arabia, therefore, a deal that includes normalisation with Israel must recognise these attributes and enhance Riyadh's regional standing rather than serve to diminish it.

Normalising relations with Israel is a key to unlocking the other nuclear and security guarantees from the US that will help Saudi Arabia expand its standing within the Middle East. A diplomatic thawing with Israel would make it stronger and better equipped compared to its primary rival, Iran.

Iran's role

Iran has been a source of much of the instability and conflict that the Middle East has seen in the decades since 1979, when Ayatollah Ruhollah Khomeini led a fundamentalist Shiite Islamist revolution. Tehran's foreign policy outlook has since been motivated by its ideological geopolitical opposition to the US and Israel.

Through its 'axis of resistance' and under the direction of the Islamic Revolutionary Guard Corps, Iran controls a network of groups, militias, political parties, and governments, all of whom are unified by their aversion to the US and Israel. The IRGC, an armed loyalist group with its elite Quds Force wing, directs, trains and funds actors driving instability across the region.

In Lebanon, Hezbollah is simultaneously the most influential political party in the country and the world's best-armed non-state actor.

It is responsible for the death of hundreds of US citizens, among others, as well as the assassination of former Lebanese Prime Minister, according to the US. The paramilitary group is funded and trained by Iran and is widely understood to be acting for Iranian interests in the Levant.

Many US bases in Iraq and Syria are legacies of the international coalition against IS that saw the US, the UK, and others from Arab countries, including Saudi Arabia, come together in a military campaign against the terrorist group.

However, US facilities and convoys in Syria and Iraq have often been attacked by Iran-backed Popular Mobilisation Front (PMF) militias.

Iran supports the Houthi paramilitary rebels engaged in the civil war in Yemen who have launched numerous attacks on Saudi Arabia, as well as attacking civilian and commercial shipping targets in the Red Sea, precipitating engagement from US warships.

And, of course, Iran has been a primary sponsor of Hamas for decades, providing weapons and funding for its ongoing campaign against Israeli citizens and forces.

Although the 7 October attacks were a surprise to Tehran, the Quds Force led hundreds of Hamas fighters in training exercises just weeks before the attacks.

Despite this surprise, Iran is seeking to use the ongoing conflict and wider disruption to improve its position as a power within the region and to leverage a stronger negotiating position with the US around issues such as nuclear proliferation and sanctions relief.

The reaction of Iran's other proxies to the attack has been notable. PMF and other militias have ramped up their attacks on US military bases in Iraq and Syria in the months since Hamas's escalation to the conflict yet has made sure to stay within the pre-existing 'rules of engagement', avoiding causing excessive human or material damage.

Houthi forces have also increased their attacks, disrupting global shipping through the Red Sea and missile attacks on Israeli targets, and Hezbollah has stepped up strikes on Northern Israel.

However, Tehran has stopped short of ordering its network into a full-scale war. It is cognizant of American warships moved to the Mediterranean and the Gulf and is seeking to keep Hezbollah's forces in reserve should another opportunity arise for them to be deployed at a more strategically suitable stage.

The violence in Gaza and Israel and the fears of regional escalation underscore Iran's capacity to stoke wider disruption across the region.

Saudi Arabia, with its energy dominance as well as alternate regional influence and potential to act as a mediator following the re-opening of diplomatic relations with Iran earlier this year, has thus become an increasingly important ally to the US.

It is in US and Israeli interests to keep open channels of communication between Saudi Arabia and the US – both Washington and Tel Aviv can benefit from Saudi Arabia's tempering influence in the current conflict.

Response to the war

For decades, Saudi Arabia has supported a two-state solution, envisioning an independent Palestinian state existing alongside a sovereign Israel. 

In a statement released at the beginning of February, the Saudi foreign ministry said there would be no diplomatic relations with Israel unless an independent Palestinian state is recognised on the 1967 borders with East Jerusalem and Israeli "aggression" on the Gaza Strip stops.

This was at the heart of the Saudi-led Arab Peace Initiative —agreed in Beirut in 2002 amidst the violence of the Second Intifada.

The initiative offered Arab states' normalisation with Israel in return for Israeli withdrawal from territories, including Gaza and the West Bank, a just solution for Palestinian refugees and the establishment of a Palestinian state.

The initiative has been re-adopted at several Arab League summits since its initial agreement, while the principle that Saudi Arabia will move toward normalisation of relations with Israel in return for a political solution to the Palestine question still holds.

This principle has not changed following the recent escalation in the conflict. Instead, Saudi Arabia has stepped up its efforts to assert its role as an international leader and work for stability and peace in the conflict. It convened November's summit of leaders from across the Arab and Muslim world, coordinating a joint response to the crisis.

The agreement called for an end to hostilities between Israel and Hamas and a political solution premised on the territorial contiguity of a future Palestinian state. However, the pragmatism of Arab states was a notable feature of the summit, displaying an understanding that there would be a need to continue to work with Israel.

Key states, including the UAE, Bahrain and Morocco, rejected proposals to disrupt oil supplies and freeze diplomatic and economic contact with Israel. They also rejected calls from Iran to arm Palestinians and Syrian President Bashar al-Assad that no country in the Middle East should engage with Israel.

Alongside these efforts to show diplomatic leadership, Saudi Arabia and other Gulf countries have pressed on with pursuing a route towards economic development. Though the war has taken much of the world's attention, the Gulf states are still following their prior trajectory, seeking economic development, peace and prosperity.

The global COP28 summit hosted in Dubai went ahead as planned, for instance, despite fears of the Gaza conflict overshadowing the conference. Dealmaking and economic cooperation with the largest global businesses saw the UAE launch a $30bn investment fund with BlackRock, Brookfield and TPG, focussing on backing climate projects across the world.

Saudi Arabia's Future Investment Initiative similarly continued at pace, with the event attracting investors and financiers such as Bridgewater, JP Morgan, and Citigroup, as well as major cultural and sporting institutions such as FIFA, all drawn by Saudi Arabia's potential and ambitious transformation plans.

Similarly, in early December, Saudi Arabia unveiled plans to transform Riyadh into one of the world's most sustainable cities through a $92bn investment plan ahead of the Expo 2030 event.

Read more: Riyadh wins Expo 2030 bid in crowning achievement for Saudi Arabia

Another flagship example of Gulf states' drive for diplomatic and economic progress – the India-Middle East-Europe Economic Corridor – is continuing despite the conflict.

The planned trade route was agreed at the G20 in September. It would link India, the Gulf and Europe through a combination of rail and shipping networks, including rail links between UAE, Saudi Arabia and Israel. 

Despite the dramatic escalation in Gaza just weeks after the announcement of the corridor, Saudi Arabia has reaffirmed its commitment to the principles behind the initiative.

The parties' commitment to continuing a project set to bind these countries closer together in diplomatic and economic terms demonstrates their understanding that the future will require closer cooperation between them.

The way forward

The recent deal to agree a ceasefire and release hostages – though short-lived – signals the likely future of the war in Israel and Gaza.

October 7 was not the onset of a new war but instead the continuation of a conflict that has been active for many years, with cycles of more fighting and bloodshed followed by calm and relative stability.

Over the coming months and years, we will see a similar progression to the conflict, but the overall strategic vision for the US and its key regional allies remains intact.

The US still desires Israel's regional integration and to keep Iran in check. At the same time, Saudi Arabia wants to assert its regional leadership whilst continuing a trajectory toward cultural modernisation and economic prosperity.

The potential US-Saudi deal and the crucial elements regarding Israeli normalisation and a Palestine peace process still make as much strategic sense for each party as it has over the last few years.

Saudi Arabia still desires the US' security guarantees within an unstable region, the economic benefits of a civilian nuclear programme, and the regional diplomatic benefits that would come with brokering a political solution in Palestine.

The normalisation of relations with Israel inherent in any future peace process would not be seen solely in Riyadh as a cost to bear but as an opportunity to attract further international investment into Saudi Arabia.

It is an important way of opening up new and profitable trade routes, all while cementing Saudi Arabia's position within the Middle East's regional power balance.

The war in Gaza naturally has set back the peace process and opportunities for regional unity. It has delayed any future long-lasting agreements, reconciliation and normalisation but has not ruled them out altogether.

Regional stakeholders must redouble their efforts to ensure peace triumphs over conflict and development and investment triumphs over state collapse. The current moment presents an opportunity, and all parties should work to seize it.

***This article first appeared in the 2024 winter issue of Horizons, published by the Center for International Relations and Sustainable Development (CIRSD). It has been updated and republished in Al Majalla.***