Jordan often punches above its weight class due to its strategic geography and diplomatic prowess. Beyond this, it has struggled to fully develop its economy and pull itself out of the mire of economic deterioration. The Kingdom’s leadership has anchored its future to foreign aid and preferential trade with the United States, GCC countries, and the EU, but this has forced the Kingdom into an increasingly complex geopolitical posture.
Jordan’s Strategic Outlook
Jordan heavily depends on foreign aid to support its economy. A semi-arid country, it lacks substantial natural resources and grapples with economic challenges, including economic stagnation, high debt-to-GDP ratio, staggering unemployment, and limited growth. The nation receives significant development and humanitarian assistance from Gulf countries like Saudi Arabia and the UAE, as well as from European and U.S. partners. This aid helps manage issues arising from regional conflicts, social instability, and the presence of millions of refugees from neighboring countries. Despite these challenges, Jordan maintains a degree of security that appeals to foreign governments, who view the country’s stability as beneficial to regional stability and worthy of ongoing support.
The role of the Jordanian monarchy, particularly under King Abdullah II, is pivotal in shaping the country’s foreign policy and securing international support. Through high-level diplomatic engagements with leaders from major powers like the US, Russia, and China, Jordan postures itself itself as a key player in regional stability and counterterrorism. The US is Jordan’s largest aid provider, with substantial economic, military, and direct budget support flowing into the country, underscored by agreements that ensure continued aid. Jordan’s reliance on this support underscores a synergy where aid is exchanged for stability, a principle fundamental to Jordan’s strategy in maintaining and enhancing its international relations. While Jordan engages diplomatically with various nations, its connections with the US are particularly strong, limiting the depth of its ties with US competitors.
Jordan’s future stability will be greatly shaped by its ability to diversify its sources of income and move away from aid dependency in a way which does not profoundly undermine domestic stability. Jordan’s leadership seeks alternative sources of support, such as from China’s Belt and Road Initiative and critical infrastructure financing. However, Jordan faces a complex array of domestic challenges that any alternative partner must be capable of addressing. These include shoring up Jordan’s national security, stabilizing the economy, and maintaining the existing monarchy’s stability. However, any major shifts or attempts to reform the Kingdom’s economic posture often fuels popular backlash, exemplified in Jordan’s tumultuous negotiations with the International Monetary Fund over state reforms. Meanwhile, major economic initiatives aiming to expand Jordan’s access to critical resources have consistently run into roadblocks, especially when they include neighboring Israel. A recent water for energy deal brokered between Israel, the UAE, and Jordan has received major pushback in Jordan, and created greater political pressure on the Jordanian government as it balances the woes of cooperation with Israel, especially during the current Gaza war.
Economic Diversification without De-Americanization
Jordan is currently nearing the final year of its 2020-2025 national development strategy, which has aimed to improve economic performance and reorient the economy towards export-led growth. The success of this initiative however has faced significant headwinds – COVID-19, multiple wars in Gaza, refugee crises, and the fallout of the Ukraine war – as crisis after crisis has tested the durability of Jordan’s economy.
Jordan needs new economic partners. Its current menu of U.S., EU, and Gulf partners are critical to its long-term sustainability, but the Kingdom’s current approach has not delivered on its economic ambitions, nor has it translated to major progress for its increasingly frustrated population.
For several years beginning in 2015, Jordan looked to China as a potential economic partner, and the two explored deepening cooperation under the Belt and Road Initiative. For their part, China’s leadership explored investing billions into Jordan’s infrastructure to serve as a potential launchpad for supporting reconstruction efforts in Syria and Iraq. The two signed a number of memorandums of understanding to explore a range of infrastructure projects, including a railway and shale-energy generation. However, Sino-Jordanian cooperation did not yield any major fruit, and the myriad of plans largely fell through. The one project which did come to fruition was the Chinese-owned Atarat shale oil plant, which has become a diplomatic sore spot for Jordan due to accusations of debt-trap diplomacy and a hefty $8.4 billion Jordan will be required to pay under the 30 year power purchasing agreement. Furthermore, since 2017, Jordan has suffered a major trade deficit as a result of a severe trade imbalance with China. This trade imbalance has grown from $2.5 billion in 2017 to a staggering $4.9 billion in 2023.
experiment with Jordan’s economic diversification through China showed the pitfalls low-to-middle income countries can run into when exploring state-to-state deals with China. The two maintain cordial diplomatic and political ties, but Jordan has largely left bilateral commercial ties with China to the private sector and has looked elsewhere to diversify its economy. China will remain a central market for Jordanian importers, but Jordan may look to broaden its access to new import markets to reduce overreliance on China.
Regional Diversification and the Case for IMEC
Diversification will be critical for Jordan to weather headwinds in the global economy and in its own, but this diversification will likely evolve from within the U.S. broader geoeconomic network of partners and allies. For Jordan’s leadership, this largely requires doing more business with its largest existing trade partners and finding ways to capitalize on new geoeconomic initiatives entering the region. BRI was one such initiative. While the BRI offered some benefits, it did little to advance Jordan’s broader goals of economic development and stability, nor did it actually translate into a substantial increase in Chinese exports of Jordanian goods.
Jordan’s largest asset remains its geography and its stability. This makes it both a critical node for regional trade and a potential home base for many companies seeking to enter the Middle East market. However, the Kingdom has struggled to incentivize economic investment and foster the growth of industry. Part of this is linked to security, but other social, political, and economic factors also hinder new business from entering the market. For nearly a decade, the Kingdom has sought investments for new critical infrastructure – a railway network, energy projects, water projects, and more. Few of them have practically seen the light of day due to complications and a challenging political environment which often quells the projects in the earliest stages. Part of the challenge is that most of these projects are linked to Jordan’s neighbors – Iraq, Saudi Arabia, and Israel. Regional politics can make negotiating business across borders difficult due to the burden of history and sociopolitical baggage, especially when pursuing business with Israel. Jordan has found success in negotiating business directly with European partners through deals such as the Jordan Compact – a deal for Jordan to provide employment for Syrian refugees in exchange for priority export access to Europe’s markets. However, these initiatives often result in few actual improvements in Jordan’s exports due to the blockage of land routes via Syria and expensive maritime trade costs via Aqaba.
For Jordan to break out of its current economic posture, it needs both better integration into the regional economy of the Middle East and the global economy. This means better access to supply chains, logistics, land and maritime routes, capital investment, technology, and knowledge transfer – all things it currently lacks.
On September 9, 2023, the United States signed a joint memorandum of understanding with Saudi Arabia, Germany, France, Italy, and the UAE to build the India – Middle East – European Economic Corridor (IMEC). The IMEC proposed developing an alternative to China’s BRI and the “Middle Corridor” to foster economic growth by improving connectivity and economic integration among Asia, the Arabian Gulf, and Europe. The IMEC envisages the establishment of two fresh economic corridors. The eastern route would link India with the Arabian Gulf, while the northern route would connect the Arabian Peninsula to Europe via a railway. This railway aims to offer a more economically efficient cross-border ship-to-rail transit network, linking India, the UAE, Saudi Arabia, Jordan, Israel, and onwards to Europe. Components of the corridor include laying cables for electricity and digital connectivity, as well as pipes for exporting clean hydrogen. It further aims to strengthen regional supply chains and improve trade accessibility for participating countries.
The real benefits for the IMEC lie with the major MOU signatories, especially India, the GCC countries, and Europe. Jordan offers perhaps the smallest geographic contribution to the IMEC, in that the physical components of the corridor will pass through southern Jordan, connecting Saudi Arabia to Israel. But those few miles of railroad, pipeline, and cables could be transformative to Amman by linking the Kingdom to thousands of miles of economic benefits.
IMEC would bring vital infrastructure investment to Jordan, kickstarting its connectivity to a cross-border railroad network. Although initially linking only southern Jordan to the broader corridor, IMEC’s impact would be transformative for Jordan’s infrastructure goals, paving the way for future connectivity projects, including rail networks with Iraq and Turkey.
IMEC offers Jordan an opportunity to boost its economy, catalyze domestic industry growth, and broaden access to both existing and new export markets. By diversifying trading partners and reducing reliance on any single market, Jordan can fortify its economy while maintaining its strategic ties with the United States. The corridor’s strategic route opens doors to new international markets, potentially amplifying export volumes and stabilizing the economy against market fluctuations. Additionally, infrastructure enhancements under IMEC could slash business costs and streamline logistics, enhancing the overall efficiency of doing business in Jordan.
IMEC members are Jordan’s top existing export markets, with India and Saudi Arabia ranking second and third respectively and Europe as a highly desired market. Jordan’s connectivity to the IMEC infrastructure will enable it to reap the benefits of economic activities and trade moving both western to Europe and eastward to India. This would streamline Jordan’s ability to increase its trade volume at a faster rate with reduced costs, potentially lowering the costs and barriers for Jordanian companies to access the new markets. If planned effectively, this offers one major outlet through which Jordan can stimulate local job growth, reduce unemployment, and bolster many of its nascent manufacturing industries to begin scaling their export capacities.
To secure IMEC’s benefits, Jordan’s leadership will need to take critical steps in line with other IMEC investors and partners to open up its regulatory and business environment to facilitate and stimulate local growth, attract international investors, and sustain those investors. Scaling two new trade corridors will require extensive coordination between signatories to address a broad range of legal, technical, design, financing, and regulatory standards to govern both the development, sustainment, and expansion of the corridors. While Jordan has yet to sign the MoU, it will need to closely monitor and, if possible, lend its voice to the development of the coordinating entities leading the IMEC process.
Expanding Ties with India
Jordan has seen significant growth in its trade ties with India, and IMEC could deepen bilateral ties and expand Jordan’s access to India’s massive domestic market and facilitate bilateral investment opportunities. At a macro level, Jordan and India maintain friendly political and diplomatic ties. India’s Prime Minister Shri Narendra Modi and King Abdullah II coordinate on issues of critical importance for Jordan, especially Israeli-Palestinian issues. While India maintains strong ties with Israel’s political leadership, India’s political support for Palestinian statehood and Jordan’s role in the peace process has reinforced for Jordan’s leadership a solid foundation on which the two have built a broad portfolio of exchanges and partnerships. This covers a wide range of areas, including trade and investment, political cooperation, technology, health, defense and security, and development.
While Jordan is not yet formally integrated into either the I2U2 or IMEC grouping, it has seen steady benefits in its economic ties to India. While China is one of Jordan’s biggest trade partners, there is a significant trade imbalance between the two valued at roughly $4.3 billion in 2023 in China’s favor. Whereas with India, whose economy dwarfs Jordan’s own, has maintained a more equal trade balance, which has grown by nearly 140% since 2017.
One specific industry which stands to benefit is Jordan’s potash mining and exports. The Arab Potash Company – Jordan’s major provider of potash and other minerals and fertilizers – is one of Jordan’s most productive sectors with business ties to India. This would allow Jordan to lower the cost of critical mineral exports and help broaden Jordan’s export potential in India. China is a major shareholder in Jordan’s potash market, but the pan-Arab owned company could leverage the opportunity to diversify their customer base through the IMEC corridor.
Jordan’s Strategic Value
Jordan may not be a major economy within the IMEC, its role as a political and diplomatic actor cannot be overstated.
The last two nodes of the northern corridor require perhaps the most diplomatic and political jockeying to secure – the Jordan to Israel linkages. Any major initiatives which are perceived to deepen Jordanian-Israeli ties will likely face major pushback in Jordan, the Palestinian territories, and the broader Arab world. The current war in Gaza shows that nonstate actors like Hamas and the Houthis in Yemen hold a level of veto power as well through the use of force to destabilize any extensions in Israel. This residual instability will be a major impediment to the final realization of a northern corridor to Europe.
Another major factor shaping the future of the northern IMEC corridor is the potential for Israel-Saudi normalization and the cadence of political developments this could initiate, ranging from a U.S.-Saudi defense pact and Saudi pressure for Israel to agree to some form of timeline in the creation of a Palestinian state. These geopolitical uncertainties will shape the future development of the northern corridor and have a profound effect on regional stability for the foreseeable future.
Jordan plays a crucial role in overcoming these obstacles and establishing the necessary conditions for completing the northern corridor. Despite the sensitivity of Israeli-Jordanian relations, cooperation exists at operational levels, and broader economic initiatives within the U.S. network of partners, offering both economic and political advantages, are likely to progress to some extent. Both Jordan and Israel exhibit caution in deepening ties with China, preferring to strengthen connections with the Arab Gulf and India, which promise significant benefits.
Furthermore, Jordan’s involvement is essential in garnering support from within the Arab world for the initiative, particularly as the U.S. faces criticism for its stance in the Gaza conflict. While the restoration of the U.S. image in the region remains uncertain, Jordan can and should advocate for its participation in the IMEC and leverage its diplomatic position to potentially playing a pivotal role in the near to mid-term. Despite challenges in integrating IMEC beyond Jordan in the short term, Jordan could still benefit from the eastern corridor by securing connectivity to Saudi Arabia during periods of instability and open up its access to markets in India and beyond.
© Jesse Marks
