been drafted. Exports of natural gas from offshore fields in the Mediterranean are also helping. Strong exports, especially from the tech sector, are helping restore growth after the wartime dip. Defence-technology firms, whose order books are brimming with contracts from both the Israeli army and foreign forces, have done particularly well. Long-time observers of Israel’s economy are unsurprised. It was fast to emerge from the global financial crisis and the pandemic. The key then, as now, was an economy based on nimble tech firms trading with the world and a highly skilled workforce. So far, there is little reason to think the erosion of Israel’s global reputation because of the ferocity of its war in Gaza will change this. Most Israeli tech wares are not sold to individual consumers, but as components, services and proprietary knowledge to larger international tech companies and as weapons systems to states. Nvidia, a chipmaker with 6,000 employees in Israel, is planning a new base with 10,000 more. Jensen Huang, its founder, recently called Israel “Nvidia’s second home”, and promised the wars will not make the firm leave. Western governments are buying more Israeli weapons. In December Germany signed a follow-on €3bn ($3.5bn) contract for Arrow 3 batteries, nearly doubling its investment in Israeli missile-defence technology. But economists worry that Israel’s economic model—high-end technology, defence exports and a small skilled elite—is becoming demographically unsustainable. Ultra-Orthodox Jews and Arab-Israelis make up over a third of the population and are having more children than other Israelis. They are barely represented in the tech sector. “Israelis’ vote this time will decide the policies of the next government on integrating the ultra-Orthodox community into the workforce,” says Yigal Newman, a professor of finance at Hebrew University. “If the workforce participation situation doesn’t change, it could ultimately derail the resilience of Israel’s economy.” The current government of Binyamin Netanyahu, Israel’s longest-serving prime minister, has poured money into the religious communities
represented by his key coalition allies. Only 54% of their men work. The rest spend their days in study. Their boys’ secondary schools do not teach English, maths or science. The share of tech workers in the labour force is the highest in the world. But it is still only 10%, and they account for over half of Israel’s total exports. This leaves the economy exposed in the long term to a brain drain of its most mobile workers. “It’s not just the economy which is based on a dangerously small number of people; it’s national security as well,” warns Dan Ben-David, head of the Shoresh Institution for Socioeconomic Research. “These are also the people who developed the defence systems protecting Israelis from missiles over the past two and a half years. ” Israel’s schools are deteriorating. On current trends, its future tech workers will be drawn from a shrinking reservoir. “This election can’t be only about replacing Mr Netanyahu and his government,” says Mr Ben-David. “It has to lead to a game-changing overhaul of the education system to draw in all Israeli children. Without that, Israel faces existential danger.” Its economy has survived wars, boycotts and recessions. But, as in its politics, the gravest threat may come from within. ■ Sign up to the Middle East Dispatch, a weekly newsletter that keeps you in the loop on a fascinating, complex and consequential part of the world. This article was downloaded by zlibrary from https://www.economist.com//middle-east-and-africa/2026/05/21/israels-economy-is- booming
Middle East & Africa | Feeling surrounded The mother of the world v the upstart Why Egypt needs and fears the United Arab Emirates May 21st 2026 When abdel-fattah al-sisi arrived in Abu Dhabi on May 7th, he might have expected a fulsome display of gratitude. Egypt had, belatedly, offered warplanes to help defend the United Arab Emirates (uae) from Iran. But instead of a photo-op in one of his palaces, Muhammad bin Zayed, the uae’s ruler, took the Egyptian president for tea in a mall. For Egyptians, the optics spoke volumes about their country’s sinking prestige. They still think of it as umm al-dunya, the mother of the world, whereas the uae is less a startup nation than an upstart one, newly arrived from the desert. They resent what they see as the uae’s encirclement of their larger, historically dominant country with separatist movements, militias and
client rulers. They are bitter that Egypt’s plight has forced it to sell prized assets and vast tracts of land to Gulf investors. The Emiratis see Egypt as ungrateful. For decades, they have bailed it out. Yet rather than rush to the uae’s aid when Iran struck, many Egyptians cheered Iran. Instead of contributing to the fight against Iran, Egypt called for de-escalation and sent ministers to negotiate. Pakistan has paid for similar policies; the uae demanded repayment of over $3bn in loans and expelled 15,000 nationals. Some in Abu Dhabi mutter that Egypt, with 400,000 nationals there, should be taught a similar lesson. Both sides have grievances. Egypt is alarmed by the uae’s support for the Rapid Support Forces, a militia accused of genocide in Sudan. (The uae acknowledges providing some early support to the rsf, but denies it is still doing so.) Egypt also frets about Emirati-backed separatists in Libya and Somaliland and the UAE’s support for a separate administration in Gaza. Most troubling for Egypt is the uae’s growing alignment with two menacing regional powers: Abiy Ahmed’s Ethiopia and Binyamin Netanyahu’s Israel. Ethiopia’s construction of the Grand Ethiopian Renaissance Dam—with the uae’s encouragement, say some Egyptians—threatens Egypt’s life force, the Nile. Israel’s continued squeeze on Gaza might yet tip its population, Islamists included, into Egypt. The Emiratis believe they are owed more loyalty. In 2023 Egypt seemed close to economic collapse. Years of overspending on Mr Sisi’s vanity projects, the army’s gutting of the economy and mounting debt had shaken investor confidence. Inflation surged. The currency tumbled. The uae provided billions of dollars, unlocking help from the imf and the European Union, and has since poured in billions more. Still, neither side will let the quarrel spiral too far. Mr Sisi has offered the uae fighter pilots if war with Iran restarts and has told Egypt’s media to stop criticising the Gulf state. But Cairo is also bolstering ties with Qatar, Saudi Arabia and Turkey. Egypt may not want to alienate the uae. But nor can it afford to rely on it. ■
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Middle East & Africa | Déjà vu all over again Donald Trump is still looking for a quick fix in Iran But he has delayed another round of military strikes, at least for now May 21st 2026 BY NOW it should be clear: Donald Trump is not eager to resume his hot war with Iran. For six weeks he has seized on any excuse, no matter how flimsy, to delay another round of military strikes. Reluctance is not refusal, however. In the absence of a deal between America and Iran, the risk of renewed conflict is growing. Mr Trump is a man enamoured of quick fixes, and some of his allies are trying to persuade him that a few more air strikes will be just that. His latest about-face came after a series of calls with regional leaders. He spoke first on May 17th with Binyamin Netanyahu, the Israeli prime
minister. It seemed as if they had agreed to resume fighting. The next day, however, the president said he would hold off at the behest of leaders from Qatar, Saudi Arabia and the United Arab Emirates. The strike, he claimed, had been “scheduled for tomorrow”. But he said the monarchs persuaded had him that “a deal will be made, which will be very acceptable to the United States.” Most Gulf leaders have indeed urged him to hold fire, fearing further Iranian strikes on their economies and infrastructure. But the president’s announcement surprised them. Diplomats from two of the Gulf countries said they were unaware an attack was as imminent as Mr Trump claimed. They were equally bewildered by his talk of a forthcoming deal. “Everything is still stuck,” says one Gulf envoy. Iran has hardly budged in weeks of indirect negotiations. It is willing to make a narrow deal in which both sides would lift their blockades on shipping through the Strait of Hormuz. Trickier issues, such as Iran’s nuclear programme, would be left for protracted future talks. That is a hard sell for Mr Trump, since it would halt the fighting with no definite Iranian concessions beyond reopening a strait that was closed only because of his war. Mr Trump is desperate for something to break the impasse—which, by now, has become a defining feature of the conflict. At first America thought assassinating Iran’s leaders would compel the regime to surrender. Then it gambled on a blockade of Iranian ports, which took effect on April 13th and was meant to cause economic collapse within weeks. By May it had vested its hopes in Mr Trump’s visit to Beijing: perhaps Xi Jinping would crack the whip and force the Iranians to accept a deal. At every turn the administration thought it could find a silver bullet to end the war on favourable terms, only to be disappointed. A clutch of aides and outside allies, from Mr Netanyahu to hawkish journalists, now seeks to convince Mr Trump that a limited round of strikes on Iran’s energy infrastructure will do the job. That almost certainly misreads how Iran would respond: it is more likely to hit back hard at its Arab neighbours than to capitulate.
Asked on May 19th how long he would wait, Mr Trump was muddled. “Two or three days. Maybe Friday, Saturday, Sunday, something. Maybe early next week,” he said. The calendar is complicated. The hajj, the annual Muslim pilgrimage to Mecca, will span the last week of May. The Saudis have begged Mr Trump not to restart a war that could leave thousands of pilgrims stranded. Less than two weeks later, America will be co-hosting the football World Cup along with Canada and Mexico. Some Washington hands think Mr Trump will not want to spoil the party (others doubt he will care). The president may not wish to resume the war. But the longer Iran remains intransigent, the more it looks like a question of when, rather than if, he will do so. ■ Sign up to the Middle East Dispatch, a weekly newsletter that keeps you in the loop on a fascinating, complex and consequential part of the world. This article was downloaded by zlibrary from https://www.economist.com//middle-east-and-africa/2026/05/21/donald-trump-is-still- looking-for-a-quick-fix-in-iran