Israel in the New Multipolar World Order | Opinion

Over these past few weeks, it has become impossible to deny the rapid emergence of a multipolar world. This trend had been in the pipeline for some time, but the invasion of Ukraine by Russia allows us to apply Hemingway's adage about going broke: the multipolar world emerged gradually, then suddenly.

What this means for the world is unclear. But expect a lot to change in the coming decade. By the end of the 2020s, the world is unlikely to look anything like it did at the beginning. The Russian invasion of Ukraine and the apparent coordination between Russia and China in its wake seem likely to instigate lasting changes in the geopolitical and economic world order on a magnitude not seen since the Second World War.

One country that will want to pay close attention is Israel. Since the end of the short Yom Kippur War in 1973, Israel's fate has been tied to the dominance of the United States. In recent years, this relationship has weakened somewhat, but it remains Israel's de facto fallback.

The problem for Israel is simple enough. Iran is a major power in the region, both historically and in terms of sheer size—and the Islamic Republic makes no secret that it does not recognize Israel's legitimacy. Israel's relationship with the United States has ensured that Iran has been contained. This was mainly accomplished through harsh economic sanctions that kept the Iranian economy weak and, until now, dissuaded Iran from pursuing nuclear weapons.

American-led sanctions do not look nearly as convincing today as they did before the Russian invasion, however. Russia and China have responded to them by stitching together a variety of measures that not only allow Russia to function within the sanctions but seek to build a rival economic system to the Western one. If Russia and China succeed, they could quite easily alleviate the burden on the Iranian economy by bringing it into the fold. This would render American sanctions much less effective tool as a tool to contain the country.

What are Israel's possible responses to this scenario? The most obvious is diplomacy. Israel has run hot and cold during the Russian invasion. Much to Russia's chagrin, Israel voted to condemn the invasion at the UN. But when Ukrainian President Vlodomyr Zelensky spoke before the Knesset he was met with a frosty reception very different from the one he received in other capitals. It is perfectly obvious that Israel is trying to walk a diplomatic tightrope here.

Israel has good relations with Russia and China. If and when the new world order emerges, Israel will no doubt use these relations to make clear its problems with Iran. But Russia and China also have good relations with Iran. The best Israel can hope for out of this diplomacy would be for Russia and China to mediate an arrangement in the Middle East that is somewhat stable. In Israel's worst-case scenario, the new emerging order would simply unleash Iran and make it Russia and China's main partner in the region.

Ukraine protest Israeli flag
A demonstrator holds up an Israeli flag while standing before an anti-war banner during a protest against Russia's invasion of Ukraine and ahead of a televised address by the Ukrainian president at Habima Square in the centre of Israel's Mediterranean coastal city of Tel Aviv on March 20, 2022. JACK GUEZ / AFP/Getty Images

Israel's other clear option is military. This could range from massive military build-up to actual attacks on Iran. There is not much to say about this path. It would be destabilizing and tragic. It is not clear who would emerge as the long-term winner—and there is every chance no one would.

Perhaps there is another unexplored option: economic. In an essay for American Affairs, I recently made the case that the shift to a new multipolar world would likely cause the decline of the U.S. dollar as the world's reserve currency. If that is correct, Israel might have an opportunity to position itself as the Middle East's financial hegemon.

The Middle Eastern economy is a strange contradiction. It is awash with extravagant wealth but totally undeveloped. This is due to the region's massive oil wealth and autocratic political structures. While Israel is not the wealthiest country in the region, it is by far the most "Western." That is, the wealth is produced through investment and is distributed broadly throughout the population—as opposed to being extracted out of the soil and handed over to the elites.

Much Middle Eastern wealth currently washes through the United States, the United Kingdom and Europe. But as I argue in my essay, recent developments will lead these countries to diversify how they manage their wealth. Israel could be in a perfect position to take advantage. For one thing, the new shekel is a reliable currency—over the long term it tracks the U.S. dollar. Property rights are well-established in Israel and the political system is stable.

Where Israel really stands out against the rest of the region though is that it could, if it tried, develop a top-class financial sector. Culturally Israel is quite Westernized, so it would not be hard to attract top financial talent into the country to help build a sophisticated financial sector. This new financial sector could attract wealth from across the region and position Israel as the financial hub of the Middle East. This would drastically increase Israel's economic and diplomatic strength in the region.

The emerging world order will create opportunities for countries that are smart enough to take advantage of them. The broad theme will be economic and geopolitical decentralization. A multipolar world will still have polar regions, and the countries that will emerge stronger will be those that figure out a way to ensure they are close to the center of these regions.

Philip Pilkington is a macroeconomist with nearly a decade of experience working in investment markets, he is the author of the book The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory.

The views expressed in this article are the writer's own.