The announcement on establishing diplomatic ties between Israel and the UAE will be looked upon as a seminal moment in world history. It will have consequences as large as the fall of the USSR, or China’s Mao opening up his country to be the factory of the world.

To understand the churn underway, it is important to have the following background:

  • Oil is at around $40 / barrel and is expected to hover within the $40 – $60 range for the foreseeable future. Arab countries need oil to be around $80 – $120 per barrel to balance their spending. Before the Coronavirus pandemic, the IMF predicted that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, collectively, would burn through their $2Trn of reserves by 2034. That date no doubt is much earlier now – Saudi Arabia itself has about $400B in reserves which covers two years of expenditure based on the current rate of spending
  • The US is now the largest producer of energy including crude and shale gas in the world, and no longer dependent on the middle east. It has taken a hard pivot from the Middle East to the Asia / Pacific region – this pivot started under Obama and will continue regardless of which party is in power
  • Renewable energy is officially cheaper than coal in many countries, including India
  • The Arab spring that overthrew multiple governments in the early part of this decade has spooked all of the autocracies in the middle east – a restless population that will get reduced benefits and/or higher taxes, is a powder keg
  • The rulers of UAE and Saudi Arabia combine to be the major axis of power in the Arab world. UAE has the most formidable military, outside of Israel, in the Middle East and Saudi Arabia’s ruler has the title of the Custodian of the Two Holy Mosques, and wields with it the requisite moral and religious authority in the Islamic world

The areas of impact of today’s announcement are as follows.

Realignment of the Arab/Muslim world – There are two factions that have formed – UAE / Saudi Arabia / Bahrain versus Iran / Turkey / Qatar. Turkey and Iran will continue to look backward and attempt to use religion as the basis for authority and power, while the Saudi Arabia and UAE led faction will attempt to modernize before the tap of oil money runs dry. Expect Bahrain to be next in establishing formal ties with Israel, and eventually, Saudi Arabia.

The emergence of a twin polar and eventually tri-polar world – By 2030, India will be the third-largest economy in the world and by many estimates, the 2nd largest after China by the middle of the century. These three countries will eventually form three poles but in the interim, many countries will have to pick either China or the US as their closest partner. The US is the natural partner for India and putting aside the political grandstanding of the Democratic party, there will continue to be greater cooperation between both countries. Russia is the joker in the pack and will require deft handling by India to keep it on its side for issue-based support.

Pakistan in deep trouble – Pakistan will lurch from one financial crisis to another, and will soon become a burden on their new owners, China. The Chinese, unlike the Americans, will not take too kindly to any trouble caused by Pakistani terrorists against Chinese interests in Pakistan, as well as not getting paid on time. Pakistan will also attempt to be more ‘Arab than the Arabs’ and take reigns as the leader of the global Ummah. Without money or spiritual power, no one will take them seriously but many of their limited resources will be wasted on trying to keep up defense spending and raking up the Palestine, Kashmir and ‘Global Islamophobia’ causes. Pakistanis remittance to GDP ratio is close to 7-8% and a lot of the remittance is from Saudi Arabia. This tap is getting turned off which shows that being the world’s best limo driver cannot buy Imran Khan a seat at the table when it matters. The economy will be further stressed and cause the Army to step in – expect Imran Khan to be shoved aside by next summer. His removal will deepen the crisis and one can expect significant fissures to develop by 2022 or 2023 at the latest. Loha garam ho raha hain, India has to be ready with the hathoda to break Pakistan apart at the right time

Reformation of Islam – The fight for the future soul of Islam has officially been kicked off by this announcement. This is the boldest prediction but all signs point to Saudi Arabia and UAE being genuine about pursuing the path to reform. There is no better partner in this than India, as along with its sizeable Muslim population, India is also the spiritual fountainhead for many key Islamic schools of thought. MBS and MBZ (the rulers of Saudi Arabia and UAE respectively) realize that the genie of radical Islamism has to be put back in the bottle, for their sake first and foremost. In Modi, they have found a kindred spirit who understands the need to modernize and reform the Islamic religion, in order to best deal with the growing Islamic radicalization problem at home. There is no coincidence why Modi was awarded the highest honors by both the UAE and Saudi Arabia. Expect to see much closer cooperation, including the possibility of forming an alternative to the OIC or a major reformation of the body to include India in the coming years.

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