Speaker 1: For more than half a century, the world's most vexing
Speaker 1: geopolitical challenge has been how to bring peace and stability
Speaker 1: to the Middle East, particularly between Israel and its Arab neighbors.
Speaker 1: They largely don't have diplomatic relations with the Jewish State,
Speaker 1: and Israel's occupation of the Palestinian territories as a flashpoint
Speaker 1: that embroils other nations, including the United States. A lasting
Speaker 1: formula for peace is flamoxt generations of political leaders, and
Speaker 1: yet out of the public eye, the wheels of peace
Speaker 1: are turning, not at the diplomatic table, and not on
Speaker 1: the vaunted roadmap, but in the world of business and
Speaker 1: in the economy. And if those wheels keep spinning, maybe,
Speaker 1: just maybe we'll see movement on the political side as well.
Speaker 1: That's what we'll be talking about today on Benchmark. I'm
Speaker 1: Scott Landman and anomics editor with Bloomberg in Washington, and
Speaker 1: I'm Daniel Moss, Executive editor for Global Economics with Bloomberg
Speaker 1: in New York. The reason peace is becoming less out
Speaker 1: of reach note that contortion has to do with the
Speaker 1: fact that Israel and its economy have been a hotbed
Speaker 1: of technological innovation fees innovation that's forcing otherwise hostile Arab
Speaker 1: neighbors to look at ways they could also benefit. Trade
Speaker 1: and collaboration in technology and intelligence are flourishing below the
Speaker 1: radar between Israel and a host of Arab states, one
Speaker 1: of which is Saudi Arabia. The big question is whether
Speaker 1: this is really putting us anywhere down the road to
Speaker 1: a normalization of relations. There are a lot of caveats,
Speaker 1: and whether this will affect relations with Palestinians or Iran
Speaker 1: is another question. But just the fact that Israelis and Saudis,
Speaker 1: for example, are quietly getting along in one way. As
Speaker 1: a start, Let's turn to Jonathan Ferziger, a reporter for
Speaker 1: Bloomberg in Tel Aviv. John has been following this angle closely.
Speaker 1: He joined us today from our office that John, thanks
Speaker 1: for being with us. Thank you, Dan, It's good to
Speaker 1: be with you both. But where are these connections happening
Speaker 1: between Israeli's and people from Arab nations? Tell us the story.
Speaker 1: Most of the connections are made in third countries, generally
Speaker 1: in Europe and the US, but also close by and
Speaker 1: Jordan and Turkey. Often the contacts are made at international
Speaker 1: conferences or through middlemen. It's not really a new phenomenon.
Speaker 1: Israeli's Arabs have been doing deals for years. But what's
Speaker 1: new is that it's starting to come out of the closet.
Speaker 1: And why do they have to go through such cloak
Speaker 1: and dagger techniques to do this? And is it becoming
Speaker 1: less than before because it's technically illegal um. The air
Speaker 1: world is essentially officially at war um with Israel since
Speaker 1: there have been peace agreements with Egypt and Jordan's, but
Speaker 1: it is illegal in most of these Arab states to
Speaker 1: do business with Israel. So what are these deals? How
Speaker 1: are they happening? So the greatest demand right now is
Speaker 1: for cybersecurity, that's where Israel has developed some of the
Speaker 1: most advanced techniques Arab states. Also by Israel's desalination technology
Speaker 1: and water management systems used informing the super secret stuff
Speaker 1: involves military and aeronautic deals and they're done covertly with
Speaker 1: some of Israel's biggest defense companies. So why are these
Speaker 1: kinds of deals coming out of the closet now instead
Speaker 1: of being concealed like you're before, Like you were talking about,
Speaker 1: Like I said, they are technically illegal and they've been
Speaker 1: going on for a long time, but the region is
Speaker 1: changing um and a lot of the Gulf countries are
Speaker 1: looking at Israel's technology and saying why not. They are
Speaker 1: trying to find a solution to Houstindian problem that is
Speaker 1: the guerrilla in the room. And meanwhile there is some
Speaker 1: level of nuance trying to see if it's possible to
Speaker 1: get these products um and still keep things this greet
Speaker 1: and the respective governments where these companies are based. No,
Speaker 1: this is going on. I know that, you know that,
Speaker 1: I know that you know that. We know right, there's
Speaker 1: a lot of winking. Um it is h They don't
Speaker 1: want this to come out publicly. There are corporate constructs
Speaker 1: third countries and straw companies that are used to create
Speaker 1: a level of plausible deniability. It's sort of like, um, hey,
Speaker 1: why are you doing business with Israel? And you say back, WHOA,
Speaker 1: I had no idea that companies Israelly. I was going
Speaker 1: to say if, for example, if the businesses is technically illegal,
Speaker 1: if the Saudi government decided, well, you know we we
Speaker 1: want to shut this down where we want to sanction
Speaker 1: these companies or put people in jail for dealing with Israel,
Speaker 1: could they just snap their fingers and do that right
Speaker 1: now since it's all out there. They absolutely could and
Speaker 1: they have not put people in jail, but they've shut down, um,
Speaker 1: certain businesses. I was talking to one guy that was
Speaker 1: running tomatoes across the Jordanian border into Saudi Arabian and
Speaker 1: it came out publicly. In fact, the competitors said, hey,
Speaker 1: what's going on with Israeli tomatoes? And so they shut
Speaker 1: down that border crossing or they wouldn't let the trucks
Speaker 1: go through. But as some of these products, especially the
Speaker 1: security products, the technology they want and they make it happen,
Speaker 1: so hiding to sound like an echo on make determinates here,
Speaker 1: it's follow the money and the ties will follow. Um,
Speaker 1: that's true. They are trying to find a way to
Speaker 1: thread this needle. Yes, there is a lot of history,
Speaker 1: there's a lot of hostility, but they're the Arab States
Speaker 1: and Israel are looking at each other and saying, oh
Speaker 1: my gosh, this going on for for seventy years, Um,
Speaker 1: how can we do business together? Jonathan hold that thought.
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Speaker 1: back with Jonathan Ferziger. Jonathan, you wrote a lengthy article
Speaker 1: for Bloomberg Business Week recently about this topic. In my opinion,
Speaker 1: it's one of the most undertold parts of the Israel
Speaker 1: story these days. You know. You all usually always here
Speaker 1: is about about the issues between Israel and the Palestinians,
Speaker 1: or the war in Syria, so on and so forth.
Speaker 1: Is there any chance that these kinds of business ties
Speaker 1: are going to extend to the diplomatic sphere or have
Speaker 1: they already extended in that direction. It's just something that
Speaker 1: we don't hear about that much. Yes, it's happening. The
Speaker 1: strongest expression is in the so called Arab Peace Initiative,
Speaker 1: and that dates back to two thousand two. The deal
Speaker 1: is that Israel can have peace and business relations with
Speaker 1: fifty seven Muslim states the entire Arab world. Further um,
Speaker 1: as long as it resolves things with the Palestinians, and
Speaker 1: that would mean Israel's complete withdrawal from the West Bank
Speaker 1: from the Gazasriban East Jerusalem, which Prime Minister N'tanyao is
Speaker 1: not prepared to do. He says publicly that the air
Speaker 1: Plan is a good start, but only if he can
Speaker 1: fiddle with some of its provisions. So the business aspects
Speaker 1: are not ready to come to the surface yet, but
Speaker 1: they're happening, okay. But there we seem stuck in the
Speaker 1: traditional dialogue when what's actually happening sub rosa is corporate
Speaker 1: links between Israeli based companies and Arab firms are becoming
Speaker 1: more and more intimate. That's right. One of the uh
Speaker 1: interesting bits of the story that was in Bloomberg Business
Speaker 1: Week was about one of the biggest defense companies in Israel.
Speaker 1: It's called Albert Systems, and they're interesting for lots of reasons.
Speaker 1: For one thing, the shares trade on Nasdack. Just two
Speaker 1: years ago, one of Elbot's employees from the u S
Speaker 1: subsidiary went to Saudi Arabia to fix a missile installation. Now,
Speaker 1: this kind of stuff is usually kept secret. In this case,
Speaker 1: the Elbot employee was found dead outside his hotel. It's
Speaker 1: still not certain if he was murdered or jumped out
Speaker 1: of the window, but it's the most public evidence so
Speaker 1: far that a big Israeli company like Elbot is active
Speaker 1: in Saudi Arabia. That this mysterious death peaked our curiosity.
Speaker 1: So my Blumber colleague Peter Walton, went to Elbert's US
Speaker 1: facility in New Hampshire and he found some interesting practices.
Speaker 1: The employees there told him that when Gulf customers come
Speaker 1: to visit, managers would take down Hebrew signs, maps, and
Speaker 1: any markings indicating Israeli origins. I called Elbot spokeswoman about that,
Speaker 1: and she said that's not company policy. I found that
Speaker 1: anecdote really interesting, Jonathan, because you know, wouldn't these Gulf
Speaker 1: customers know that Elbot is an Israeli company even if
Speaker 1: they're visiting the office in the US, whether or not
Speaker 1: that's officially company policy. That sounds kind of like a
Speaker 1: um non denial of the of the information you had
Speaker 1: in the story. But you know, is that really just
Speaker 1: for show purposes? Just to kind of keep up the
Speaker 1: fiction that these Arab states are not dealing directly with
Speaker 1: Israeli Israeli companies, Well, of course, yes, no, um, yes,
Speaker 1: there's a general sense that um these are that there
Speaker 1: their relations between two and yes, if you look at Elbot, uh,
Speaker 1: any serious customer knows that Elbot Systems of America is
Speaker 1: a branch of the Israeli company. So yes, there's a
Speaker 1: lot of thinking and nodding, talk about winks and nods.
Speaker 1: One of the most compelling anecdotes Jonathan, is how is
Speaker 1: Riley technology almost got used and how the Saudi royal
Speaker 1: family manages the pilgrimage to Mecca of all things. Yeah.
Speaker 1: This grew out of a mega project in which a
Speaker 1: security system that was developed on an Israeli key boots
Speaker 1: on a farm was installed in the Gulf Emirate of
Speaker 1: Abu Dhabi. The contract was worth about six billion dollars.
Speaker 1: That got the company's chairman thinking about how to sell
Speaker 1: elsewhere in the Gulf, with the ultimate prize being Saudi Arabia.
Speaker 1: And it took a lot of nerve, you might say,
Speaker 1: hutzba to pitch this contract. The idea was to root
Speaker 1: out unauthorized people who try to reach Mecca during the
Speaker 1: annual Hodge religious pilgrimage. In the end, the deal went
Speaker 1: to a Saudi company, even though the Israeli technology is
Speaker 1: said to have been judged to be the best. Now
Speaker 1: these ties happening as the Saudi Arabian government itself wants
Speaker 1: to reinventage economy. Talk about that a bit. It's interesting.
Speaker 1: The guy in charge of overhauling the economy in Saudi
Speaker 1: Arabia is the Deputy Crown Prince, Mohammed bin Selman. He
Speaker 1: doesn't come out and say this openly, but some of
Speaker 1: his aids are very clear that Israel is on their map.
Speaker 1: There's a Sally lobbyist in Washington we talked to who's
Speaker 1: close to the Deputy Crown Prince, and he told us
Speaker 1: there's no question that they're in the market for Israeli
Speaker 1: technology again in the fields of cyber security, desalination, and agriculture.
Speaker 1: On the other hand, when we asked for a Palace response,
Speaker 1: the official position was that Saudi Arabia has no commercial
Speaker 1: relations with Israel. So the bottom line here is this
Speaker 1: kind of peace in the business and economic world going
Speaker 1: to keep extending, keeps breading, deepening, regardless of what happens
Speaker 1: with the Israel and Palestinian question. Well, you know, it's
Speaker 1: it's certainly possible, but but heart safe. For sure. The
Speaker 1: formula of business essentially lubricating the way for political compromise
Speaker 1: has been out there for decades um. Certainly it's part
Speaker 1: of the Oslo Piece Accords. There's some strong political forces
Speaker 1: and strategic interests that are bringing the Gulf States to
Speaker 1: build ties with Israel. But again, nobody wants to be
Speaker 1: seen as abandoning the Palestinians. So most people I talked
Speaker 1: to said that the prospects for public deals with Israel
Speaker 1: are still pretty dim for now. At the same time,
Speaker 1: this under the radar business keeps on growing. So with
Speaker 1: these economic and technological forces bearing down relentlessly on the relationship,
Speaker 1: is it entirely possible peace could be made among these
Speaker 1: nations the Palestinians left at the altar. You know, I
Speaker 1: don't think that that's going to happen. Although it looks
Speaker 1: like it. Every time that a deal uh looks like
Speaker 1: it's it's coming together, it doesn't. There have been fifty
Speaker 1: years since the nineties seven Six Day War, and every
Speaker 1: time that you have a piece initiative. It just seems
Speaker 1: to fall through the through the cracks now as far
Speaker 1: as business happening despite the absence of a deal, as
Speaker 1: I say, it is growing under the radar um, but
Speaker 1: I don't think that they're ready to leave the Palestinians
Speaker 1: high and try like that. Jonathan, this has just been
Speaker 1: a really interesting talk. The article you wrote is fascinating
Speaker 1: and I would urge anybody listening to this podcast to
Speaker 1: go and check out that article in Business Week. Jonathan Ferziger,
Speaker 1: thanks so much for joining us today. Thank you, Scott,
Speaker 1: Thanks Dan. Benchmark will be back next week and until then,
Speaker 1: you can find us on the Bloomberg terminal, Bloomberg dot com,
Speaker 1: or Bloomberg app, as well as on Apple Podcasts, pocket Casts,
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Speaker 1: and let us know what you thought of the show.
Speaker 1: You can follow me on Twitter at at Scott Landman,
Speaker 1: Dan you are at moss Underscore Echo, and Jonathan you're
Speaker 1: at at at. Benchmark is produced by Sarah Patterson and
Speaker 1: the head of Bloomberg Podcast is Alec McCabe. Thanks for listening,
Speaker 1: so you next time