Israeli Prime Minister Benjamin Netanyahu’s October 25 visit to Oman spawned speculation about Muscat’s position on the stalled Israeli–Palestinian peace process and myriad regional security challenges. However, it is Oman’s economic concerns that drive its interest in renewing relations with Israel after having cut ties in 2008. Oman has struggled to shift to a post-oil economy in recent years. Worries over the health of Sultan Qaboos bin Said and an uncertain succession have given the sultan and his government added urgency to start such an economic transition. Crude exports currently account for up to 71 percent of government revenues, which Muscat, rather predictably, has been relying on to ease the economic burdens of rising youth unemployment, increasing Yemeni refugee flows, and subsidizing the basic living costs of around 84,000 low-income households, or roughly one-third of its citizens.
Oman’s already dwindling oil and gas reserves, which are set to deplete in 14 and 27 years respectively, are becoming costly to extract at a time when suppressed global oil prices have diminished their returns. Muscat has been forced to seek alternative ways to increase its revenue and address its growing budget deficit, which stood at 3.5 billion Omani rials ($9.1 billion) in 2017, or around 10 percent of GDP. The government has contemplated fuel and energy subsidy cuts and additional taxes, but it is wary of public pushback against such austerity measures. The Omani government removed fuel subsidies in 2016, which drove oil prices up so much that public protests broke out in Muscat on February 2, 2017—the first major demonstrations since 2011—forcing the government to reinstitute a smaller subsidy the following week.
Instead of austerity measures, Muscat sees economic diversification as a solution, making it the top priority in its Vision 2040 development plan, issued in 2017. The plan, a repackaging of Oman’s Vision 2020 launched in 1995, focuses on modernizing agriculture, creating technology and startup ecosystems, boosting tourism and establishing free industrial zones near the port cities of Salalah and Duqm.
Israel can be of immense assistance to Muscat, especially in the agriculture and the high-tech sectors. While Oman can source these technologies from other countries, it also recognizes that Israeli leadership increasingly values having relations with Arab states as part of its wider strategy of countering Iran. Following the lead of Saudi Arabia and the UAE in slowly warming up to Tel Aviv, the public meeting between Netanyahu and Sultan Qaboos, during which he officially called for the recognition of Israel, puts Muscat ahead of the curve in pursuing normalization and all its economic and strategic benefits.
As part of Vision 2040, Oman’s Council of Ministers mandated the Ministry of Agriculture and the Oman Food Investment Holding Company (OFIC) to develop, invest in, and implement programs aimed at boosting farm production. This includes increasing exports of dates, honey, and fruits. To achieve this, Oman aims to introduce precision irrigation and non-thermal processing to increase crop yield and quality while using less water. Given Israel’s own arid climate and water scarcity—in addition to a strategic desire for agricultural independence and food security—Israeli companies are among the leading players in the global market for such agricultural technology. Israeli firms such as Metzer, Amiram, and Hazera have particularly distinguished themselves in carrying out effective projects in Africa and China to improve irrigation, seeding technology, pest control, desalination, renewable energy, and waste management. The technology Oman needs to achieve its agricultural targets, Israel has in abundance.
Israel has also been successful in the establishing and managing highly functional startup ecosystems despite its relatively small population. This includes experience regulating and coordinating university programs with those of the incubators, accelerators, and seed and venture capital funds—as well as relevant ministries and public bodies, such as the Ministry of Industry, Trade and Labor and the Israel Innovation Authority—within a single framework to promote innovation. Oman has made some progress on its own to become a regional startup hub. Various incubators and funds have set up in Muscat in recent years, among them Riyada, Zubair SEC, Al Raffd Fund, and Iskan Oman Investment. However, there seems to be a mismatch between the startups these funds support and the research and policy agendas of the Ministry of Commerce and Industry, the Public Authority for Crafts Industries, and leading academic institutions such as Sultan Qaboos University. For example, while the government seeks to nurture tech startups, Sultan Qaboos University has yet to set up an independent information technology (IT) or computer science college. National universities also do not synchronize their research programs with the Ministry of Labor’s projected demands within the job market. Therefore, officials at the Supreme Council for Planning can learn a great deal from Israel’s experience.
Moreover, as part of its wider diversification move, Oman has been relentless in pursuing diversified sources of defense equipment. This is evident in recent deals with India, including the signing of a memorandum of understanding in February 2018 to let the Indian navy berth at the port of Duqm. Increased illegal border crossings from Yemen are feeding Oman’s fears that terrorist cells could emerge inside its refugee camps. Tensions with Saudi Arabia and the UAE over its neutrality in Yemen and Qatar are also stoking worries that Oman may become a target of these countries’ increasingly hawkish foreign policy. Vision 2040’s aim of developing Salalah and Duqm as major maritime hubs further pits Oman against the UAE economically. Although the United States has also increased its military sales to Oman, the current U.S. administration appears to be siding with the UAE and Saudi Arabia over unresolved border disputes between Abu Dhabi and Muscat, making access to Israeli surveillance and monitoring technologies an attractive backup.
Most importantly, Oman hopes to enlist the services of Israeli cybersecurity firms given its private and governmental sectors’ vulnerabilities to large scale, sophisticated cyberattacks from either its immediate neighbors or more distant states. Having seen how Qatar and the UAE have targeted each other’s networks in recent years, increasing and strengthening its cyber resilience is among Muscat’s top priorities. Israeli private firms already play a critical role in enhancing the cyber capabilities of the UAE and Saudi governments, seemingly attaching no strings such services save a tacit recognition of it as a legitimate state. It should not come as a surprise that Muscat too wants to get its hands on their software.
For Tel Aviv, resetting relations with Muscat gives it access to a new and relatively lucrative market in a strategic location. Israeli firms would also gain easier access to the nearby Indian market by operation through Oman, which has fewer logistical hurdles. NaanDanJain, an Israeli-Indian firm that specializes in water irrigation systems for rice production, can potentially set up a storage and processing facility in Oman without having to obtain as many permits as it would in India. Similarly, Israeli companies can seek to establish working relations with the Oman India Fertilizer Company (OMIFCO) to develop and sell products for export to India for a lower cost of labor. Israeli IT firms could potentially also tap into the large pool of Indian IT talent already residing in Oman—thereby avoiding the bureaucratic red tape of establishing a presence in India.
Israel (as an innovation hub) and Oman (as a logistical hub) are both important to China’s and India’s wider global strategies, as seen by their investments in Israeli tech firms and in developing Oman’s port of Duqm. Oman and Israel could use this to forge a reciprocal relationship for trade with these economic giants, building on their geographical and technological attributes. For instance, Israel is already a major supplier of weapons and technology to India—which buys 49 percent of all Israeli arms exports, making Israel its largest military supplier after Russia and the United States—and China—to which Israel sold $3.5 billion worth of goods and services in the first eight months of 2018, primarily surveillance and cybersecurity technology. Partnering with well-funded Omani entities, such as the Oman India Joint Investment Fund and the Duqm-based China-Arab Wanfang Investment Management (Ningxia) Company, would further enable Israel to set up factories or research and development centers for export to these major hubs.
Yet for that to happen, Oman’s pragmatic, principled, and independent foreign policy will be indispensable in the post-Qaboos era. Given the highly personalized nature of decisionmaking under his rule, there is a danger his efforts might get interrupted even though he has already prepared the ground for his inevitable departure. The more stubborn obstacle is whether Israel is truly committed to the establishment of a Palestinian state, as this has been of paramount importance to Muscat for decades.
Nima Khorrami Assl is a freelance political risk consultant focusing on geopolitics.
