Five impacts of the Gaza war to watch
The latest Gaza war has resulted in horrific loss of life since October 8, 2023, and no matter how it eventually ends, the US government and companies should be paying attention to these five ripple effects:
1. The reputation of the United States and US company brands have taken a major hit in the region
Support for the United States was not high in the Middle East prior to October 7, 2023 and strong US support for Israel has always angered the Arab public. Still, the mass casualties caused by Israel’s post-October 7, 2023 operations, coupled with President Joe Biden’s strong support for Israel, have caused public indignation towards the United States to reach new heights. From my conversations with business leaders and experts in the region, there is a concerning level of outrage with US policy, which is perceived as both amoral and damaging to the region’s ability to develop economically.
Social media platforms Instagram and TikTok enable users to view real-time glimpses of the war zone straight from the ground and make it easier to share horrific, haunting clips. The United States’ support for Ukraine following Russia’s 2022 invasion—and US efforts to rally allies and partners, including in the Middle East, to avoid supporting Russia’s war machine—makes US aid to Israel at this moment seem particularly hypocritical in the region.
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In an Al-Monitor poll conducted in March, respondents in Egypt, Iraq, Tunisia, and Turkey were asked who they view more favorably: Russian President Vladimir Putin, Chinese President Xi Jinping, or US President Biden. Forty-four percent of respondents said Putin, 33 percent said Xi, and only 21 percent said Biden. These numbers are an indication that the United States is not winning hearts and minds, despite its many advantages.
Although the United States is primarily known in the region for its security partnerships with governments, it also makes life-changing investments in human development, such as the Women Innovators (WIn) Fellowship for entrepreneurs in Saudi Arabia, the United Arab Emirates (UAE), and Bahrain that I co-founded, as well as a host of other programs to support young leaders and civil society organizations through mentoring, people-to-people exchange, and direct grants. Unfortunately, these impactful programs do not get much publicity and may now face an exodus of participation due to people’s hesitation about associating with US government programs.
The Israeli-Palestinian conflict is not the only factor driving the negative perception of the United States. The explosion of this issue onto the scene again amplifies preexisting concerns regarding perceived US hypocrisy, Islamophobia, and callousness about the deaths of Arabs. Competitors to the United States, such as China, are capitalizing on this situation by speaking out in support of the Palestinians and painting the United States as only following the rules-based international order when it suits US national goals. This message will resonate with many people across the world, despite China’s abysmal record on human rights and its stated intention to reunite with Taiwan by force if necessary.
If the current conflict widens or remains in a slow-motion state of mass suffering, anger toward the United States may intensify. As discussed later, this can have multiple second-order effects.
2. Boycotts of certain US brands are occurring and will continue to flare up periodically
In Middle Eastern countries where protests are severely restricted, and the consequences for speaking out can be dire, boycotting US brands is a low-risk way to collectively demonstrate anger about the situation in Gaza and US support for Israel. Boycotts of this nature have occurred sporadically in the past, but they lacked the momentum and staying power of those taking place now.
Starbucks has been hit hard by boycotts in the Arab world after the company sued its workers’ union in the fall over its social media post that said “Solidarity with Palestine.” The AlShaya Group, which operates Starbucks in the region, has announced that it will lay off 4 percent of its fifty-thousand-person workforce—a figure that equates to about two thousand workers—due to sales declines. Starbucks’s earnings have also plummeted: net income declined 15 percent in the second quarter of this year, and the company’s chief executive officer said one factor impacting this poor performance was “misperception around its brand, tied…to the Israel-Hamas war.”
Similarly, Americana Restaurants, which operates KFC and Krispy Kreme in the Middle East, reported a 48-percent decline in first-quarter profit this year. Several other companies, such as Domino’s and Coca-Cola, have also been targeted. More brands may face similar challenges, particularly if they are perceived as taking a pro-Israel stance.
Domestic brands will seek to replace boycott targets whenever possible. Sales of Egypt’s local soda alternatives have increased 500 percent since October 7, 2023. Jordanian coffee chain Astrolabe’s business has increased between 30 and 40 percent, according to its founder. On social media, images of boycott targets and suggested local alternatives abound. As many people find alternative products and stick with them for months, their loyalty may transfer to the replacement brands in the long term.
The boycott movement is not confined to the Middle East. Two waves of recent social justice movements—#MeToo and #BlackLivesMatter—have drawn attention to discrimination and abuse in the United States. These movements have impacted many young Americans and helped fuel activism by and on behalf of other marginalized groups, such as Palestinians. The members of society who feel strongly about this issue—whether in the region, the United States, or Europe—will likely remain committed to pursuing boycotts and protests to call attention to this issue.
3. Israel’s ability to bring in foreign direct investment may be diminished
Aside from the predictable economic consequences of mobilizing 360,000 reservists for military service for months on end, Israel will face other types of economic headwinds. Israel is famed for its “startup nation” entrepreneurial ethos; it has the world’s largest number of startups per capita. Despite its small population of about 9 million, Israel has also punched above its weight in terms of attracting investment. However, funding for Israeli tech startups fell by 56 percent in 2023, and this trend will likely continue.
The reputational and financial earnings risks of associating with Israel have significantly increased. Multinational companies have seen the damage boycotts or other types of protests can cause, and they also worry about triggering internal, employee-led movements. Most companies would prefer not to take a public stance on the divisive Israel-Palestine issue, and investing in Israel could be seen as taking a side.
Companies are also concerned about how the war could impact in-country security for employees or their ability to do business because of airspace closures, supply-chain disruptions, the need to shelter in place, or other challenges that an expansion of the violence could cause. These business risks are another factor impacting Israel’s slowdown in foreign investment. In short, nonessential corporate investments in Israel may be shelved, and future investments may be directed elsewhere.
4. Arab states are pulling away publicly from the United States in some ways, but still desire close ties
Saudi Arabia and the UAE are cultivating ties with China, India, Iran, and others because they have concerns about US reliability. They would rather have stable relations with Iran and the groups it backs so that tensions do not boil over into conflict that disrupts economic diversification, the top priority for both Saudi Arabia and the UAE.
Still, only the United States can provide the kind of security assurances countries in the region seek. The remarkable collective response to Iran’s attack on Israel in April demonstrated the security cooperation that is possible. The United States, Israel, France, Jordan, and the United Kingdom successfully shot down the majority of the drones and missiles Iran fired, and Saudi Arabia and the UAE reportedly shared critical intelligence with the United States.
This type of alliance presents domestic political risks to Arab leaders when it is activated to come to Israel’s aid during a devastating war in Gaza. However, in other circumstances, it may help deter Iranian and proxy-group aggression in ways that China is unwilling and unable to do. Governments in Jordan, Saudi Arabia, the UAE, Bahrain, and Qatar are therefore likely to keep close security ties with the United States, while also seeking to keep ties with Iran stable and further develop an economic relationship with China.
5. The potential for destabilizing regional protests and lone-wolf attacks has increased
Another outcome of the Gaza war is the increased likelihood of lone-wolf attacks on US officials, embassies, and companies operating abroad. In a recent poll of sixteen Arab countries, 51 percent of respondents said they view US policies as the biggest threat to the security and stability of the Middle East, up from 39 percent in 2022. Before the start of this most recent war, the majority of the populations in Arab states favored diplomatic relations with Israel so long as a Palestinian state was established. Now, some experts I speak to worry that Arab public opinion has hardened, and the majority are in favor of breaking ties with Israel.
In tandem with these developments, violent groups are using the ongoing war as recruiting and radicalizing fodder. There have already been more than 150 attacks on US forces based in the region since mid-October 2023, plus several murders in France and Belgium carried out by Islamic State of Iraq and al-Sham (ISIS) supporters who are newly energized by the situation in Gaza.
When the world’s attention begins to move away from Gaza, it will be tempting to think the situation will stabilize. However, as Arab media expert Marc Lynch argues, a backlash from the Arab world may eventually erupt, so it would be a strategic error for the United States and companies operating in the region to ignore the potential impact of Arab public opinion. As just one indicator of what may be boiling under the surface, people in Jordan continue to demand a ceasefire despite the high risks of protesting. Since October 2023, the country has arrested more than 1,500 people for participating in demonstrations, including five hundred since March who were picketing outside the Israeli embassy in Amman.
The Israeli-Palestinian conflict resonates fiercely with many people globally. Though the protests, boycotts, and risk of violence may ebb and flow, they are unlikely to decrease significantly until the root causes of this tragic situation are addressed.
Stefanie Hausheer Ali is an Atlantic Council nonresident fellow and a senior director at international affairs consulting firm Rice, Hadley, Gates & Manuel LLC. The information in this article represents the views and opinions of the author and does not necessarily represent the views or opinions of Rice, Hadley, Gates & Manuel LLC.
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Image: A protester holds a placard calling for the boycott of Starbucks products during the demonstration at Ceylanlar Shopping Center. In the Israeli protest organized by Prophet Foundation Lovers in Diyarbakir, Turkey, the rulers of Islamic states were accused of passivity. In the protest, a call was made to boycott the products of companies belonging to America, England and other western countries, especially Israel.