19.    THE MIDDLE EAST

19.1   The Middle East is the most volatile region in the world, with a potentially lethal combination of insecure, competitive and well-armed governments, and three issues with a capacity to reverberate internationally - the status of Israel, the presence of weapons of mass destruction (WMD), and the world's largest reserves of fossil fuels. The ability of conflict in the Middle East to affect the rest of the world is well-tested.

19.2   The Middle East Peace Process (MEPP), the set of negotiations to bring about peace between Israel and its Arab neighbours, is heading jerkily towards conclusion. Israel has made peace with Egypt and with Jordan. Syria (inextricably linked to Lebanon) and those at the heart of the issue, the Palestinians remain. The core deal of the peace process is as it has always been - land for peace. There are extremists on both sides who have no interest in such an exchange: Jews who regard the whole of Palestine as their endowment; Arabs who deny any legitimacy whatsoever to a Jewish state. The peace process can be threatened and temporarily derailed by them. But they do not have the capacity to thwart it indefinitely. The timing and nature of the deals will critically depend on the leaders and their interests. Majorities on both sides favour a settlement.

19.3   But when such a settlement is reached, with an internationally recognised Palestinian state, it will not be a peace such as other parts of the world enjoy. There may well be a requirement for an international presence of some kind on the new borders or in sensitive areas such as the holy places. New Zealand has been represented in both UN and non-UN missions in the region since 1954 and could well be looked to for further contributions.

19.4   The conclusion of the peace process will enable Israel's formal relations with other Arab countries to improve, but the mistrust of two generations will not instantly evaporate and radicals will continue to be a destabilising element on both sides. Most Arab governments will remain suspicious of Israel, and Arab attitudes will remain strongly anti-Israeli for at least the next couple of generations. Tensions will continue and will be exploited by leaders who will not scruple to abuse religion for their own ends. Israel and Jewish people will remain easy targets. The US commitment to Israel will remain strong.

19.5   Not all tensions in the region directly involve Israel. While Iraq's aggression in the 1990s against Kuwait ended in crushing defeat at the hands of an international coalition, the perpetrator, Saddam Hussein, still rules in Baghdad. He has enhanced his reputation in the Arab world by defying the United Nations and the United States, even if that has meant that his country is still subjected to sanctions he has helped make increasingly controversial.

19.6   The more technologically advanced Islamic countries (including Iran, Iraq and Egypt) would all be able to produce nuclear weapons more rapidly if they were able to acquire the necessary fissile material from abroad. There is concern that storage facilities for fissile material in countries of the former Soviet Union (primarily Russia) lack adequate security and are vulnerable to theft. Unconfirmed reports suggest that some Middle Eastern countries may have attempted to acquire fissile material from that source. Pakistan's possession of nuclear weapons poses an additional risk of proliferation into the Middle East. There have been proposals to create a nuclear weapons free zone in the Middle East but given the generally assumed nuclear status of Israel and the nuclear aspirations of other countries in the region there is no likelihood of this being achieved.

19.7   The significance of the Middle East as the home of the world's largest reserves of fossil fuels is likely to increase as global demand grows. (See annex for chart depicting oil reserves). The polities which control the oil reserves are varyingly stable; borders are ill-defined and some are contested. A generational change is now under way in the region. In most countries this should not give rise to instability. But increasing pressure on resources (especially water), very high population growth rates and the maldistribution of wealth are creating tensions. High oil prices would ease the burden.

19.8   There is international interest in the reserves of fossil fuels in central Asia. But these reserves are much less than those of the Gulf, and are considerably more costly to pipe out. There is therefore unlikely to be an intense bout of strategic competition, but rather position taking, driven by oil price movements.

19.9   Despite the revenues which flow from oil reserves, the kind of economic growth which has helped ameliorate social tensions in East Asia seems to elude the Middle East. Part of the reason for this is that oil reserves are not uniformly distributed throughout the region, but, with few exceptions, tend to be concentrated in the Gulf states. And they have seen no need to take upon themselves financial responsibility for their less well-endowed neighbours. So in many Middle East countries there is a shortage of capital investment.

19.10   While there has been a measure of liberalisation in some Middle Eastern countries over the last few decades, it has not been accompanied by genuine democratisation. Autocracy is still the norm in most regional states; and most Arab states still have a tribal core. Saudi Arabia's significance as home to Islamic Holy Places (Mecca and Medina) places it squarely at the centre of Islamic emotion, as does the Temple Mount for Jerusalem.

19.11   Political development towards greater democracy is likely to be slow, as will be substantial advances in human rights. Part of that limited progress will be related to the ongoing struggle in many Muslim minds between the pressures of modernisation and the dictates of Islam - and, especially, the influence of Islamic fundamentalism. While over the last thirty years the fundamentalists have only been able to take power in Iran and the Sudan, and their political appeal in many regional countries remains quite narrow, their efforts have successfully restricted social attitudes and behaviour throughout the Middle East - and will continue to do so. An intended side-effect of this is delaying and frustrating modernisation. (A second order consequence is a negative impact on economic growth.) Given the poor economic prospects for many countries in the region, and the likely widespread continuation of autocratic governments throughout much of it, Islamic fundamentalism will remain a refuge and strength for many marginalised Muslims there. But its ability to fulfil these people's socio-economic expectations is highly questionable.

19.12   Against this background Islamic fundamentalism remains a threat to stability. Although Islamists have failed to overthrow governments in Algeria and Egypt they continue to win support in many Middle East countries, particularly among the urban poor, but also in parts of the middle classes. All regimes (including those in central Asia) are very conscious of the strength of the Islamist impulse, and the fundamentalists' use of assassination and other forms of terrorism. Western interests will continue to be targets, both within the region and beyond. The US, as the pre-eminent western power, is the focus of these campaigns, and has reacted accordingly. Other western countries could also be caught up in these campaigns.

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