The Middle East is a growing market for German firms, in addition to energy dependence. Large regional players are also major investors in Germany, so what would be the consequences of an escalation of the conflict between Israel and Hamas, according to Deutsche Welle.
The world is waiting with bated breath for Israel’s full-scale ground offensive into the Gaza Strip. The unfolding humanitarian catastrophe in Palestine has grabbed all the media headlines, but politicians and businessmen are increasingly worried about the economic consequences of the protracted conflict between Israel, Hamas and other countries in the region.
Israel has long been one of Germany’s key economic partners, although Berlin exports to the Mediterranean country account for just 0.4 per cent of the country’s total exports – renewable energy, cars, auto parts, machinery, chemical and pharmaceutical products. Rolf Langhammer, a senior research staffer at the Kiel Institute for the World Economy (IfW Kiel), told DW:
Trade and foreign direct investment between the two countries is small, but for technology transfer and cooperation in research in natural science and physics, Israel is extremely important and has been since the 1960s.
Over the past decade, German firms have forged close relationships with many Israeli tech fledgling firms. According to the German government website, major companies such as Merck and Siemens hire top-notch engineers from Israel, while Deutsche Telekom, Bosch, Daimler, Volkswagen and BMW have research and development centres in Israel or invest in start-ups, Deutsche Welle reports.
Industry executives expect co-operation between the two countries to continue to grow, especially as Israel is a leader in healthcare, cybersecurity, biotechnology and renewable energy, and innovation in the food sector. However, in the short term, many projects may be put on hold due to uncertainty over the direction of the conflict between Israel and Hamas. Charme Rykower, deputy managing director of the German-Israel Chamber of Industry and Commerce, told DW:
There’s a big fear [among German companies] of an escalation, especially if Iran or others get involved. I don’t want to imagine the outcome if we have a long, bloody conflict ahead of us.
According to Rykover, German firms operating in Israel have not yet taken any action. However, he noted that the Israeli economy had already suffered the consequences of the 7 October Hamas attack.
The shekel’s exchange rate against the dollar has plummeted to multi-year lows, hundreds of thousands of Israelis have been drafted into the army, and many firms are experiencing severe shortages of needed staff. Thousands of other employees have been temporarily sent on unpaid leave as clients stay at home due to security threats. Rykower added:
We have to be patient and hope that this conflict does not escalate and that things will recover in a few weeks.
The German government has sided with Israel in the conflict against Hamas. At the same time, Germany must strike a delicate balance as other Middle Eastern countries condemn Israel’s military tactics. Many of these countries are or could become even more important economic partners for Germany, according to Deutsche Welle.
For example, Qatar is mediating negotiations for the release of some 220 hostages taken by Hamas in Israel. The Gulf states have also strongly criticised Israel’s fight against Hamas, which has killed more than 7,000 people, according to the Gaza Health Ministry.
This week, Qatari Emir Sheikh Tamim bin Hamad Al-Thani said “Israel shouldn’t be granted an unconditional green light and unrestricted authorization to kill” Palestinians. IfW Kiel’s Langhammer told DW:
Qatar stands out as the most important Middle East investor in Germany. It has stakes in companies like Volkswagen, Deutsche Bank and Siemens.
He emphasised that last year, amid the European energy crisis that caused a spike in natural gas prices, Germany also signed an agreement with Qatar to secure liquefied natural gas (LNG) supplies that would start in 2026. Langhammer added:
Any sort of escalating crisis would hit Germany hard because of its dependence on energy from the region. But at the same time, a country like Qatar doesn’t want to see its investments in top German companies go down the drain. The bigger threat is, of course, Iran.
Iran, which backs Hamas and the Lebanese group Hezbollah, which is also fighting Israel, has previously threatened to close the Strait of Hormuz amid ongoing tensions with Israel and the West. Large volumes of oil are transported through the strait, the world’s most important oil waterway.
Iran’s controversial nuclear programme has affected its trade relations with Western countries, against which the EU and the US have imposed sanctions. Other countries in the region, including Egypt and Saudi Arabia, with populations of 109 million and 36 million, are also in the area of interest for German exporters. Helene Rang, CEO of the German Near and Middle East Association, told DW:
Economic ties with the Middle East region are of strategic importance. Among the key factors here are the geographical proximity as well as the growing sales and consumer markets due to large local populations.
Rang spoke about upcoming grand infrastructure projects, including the Neom project in Saudi Arabia – a huge futuristic city being built along the Red Sea at a cost of half a trillion dollars – that are opening up new horizons for German businessmen. He said:
We hope it [an escalating conflict] will not have a huge impact on economic cooperation. The situation is difficult … [but] at the same time, we hope that a solution will be found through international diplomacy. The peace meeting in Egypt was an important first step.
