Developmental states in the Middle East and the status of the Islamic Republic of Iran

The Middle East is usually recognised through words such as oil, crisis, war, chaos, terrorism, radicalism and underdevelopment. It has been trying to make some noteworthy transformation during recent years.

Despite enduring systemic and security challenges along with conflicts, some countries in the region, especially those on the southern edge of the Persian Gulf, have been contributing proactively to the stabilisation of the region by positioning themselves as developmental states. Through the formulation of a macro strategy, these countries have embraced approaches in which both domestic and foreign policies leverage all potential internal and external resources and capacities, aligned with their developmental goals.

They have cultivated developmental elites, strengthened bureaucracies and established a degree of state independence from society. This multifaceted approach involves actively pursuing both domestic economic reforms and developmental foreign policies. The overarching goal is to capitalise on opportunities within the international political economy, attracting transnational resources to foster national development within their borders.

The Middle East has witnessed distinct waves of developmental states, rooted in the historical context of the collapse of the Ottoman Empire and the gradual expansion of European influence in the region, shaping both the modern state and the regional state-system. Since the late 1960s, the initial wave of establishing developmental states commenced in Lebanon before the outbreak of the civil war in 1975, as well as Egypt, Syria and Iraq, which adopted socialist policies and implemented land reforms. During this period, Lebanon successfully increased the presence and economic activity of multinational corporations in Beirut by maintaining internal equilibrium and a balanced approach to foreign relations. Beirut became a model of an international city. However, with the onset of the civil war and the subsequent departure of many of these companies, the momentum toward creating a development-oriented government came to a halt.

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The second wave unfolded in the 1980s and 1990s, characterised by countries like Saudi Arabia, Kuwait, Qatar and the United Arab Emirates taking the lead. Through implementing neoliberal economic policies they made substantial investments in infrastructure and the oil and gas sectors; engaged in robust economic diplomacy; and played a substantial role in portraying themselves as peace-oriented governments and accelerated their economic progress and development.

The third wave, occurring in the 2000s and 2010s, featured countries like Qatar, the UAE and Saudi Arabia investing heavily in education, science and technology, marking a shift towards knowledge-based development strategies.

In the preceding years, Lebanon achieved an average economic growth rate of 4.5 per cent, with inflation averaging 2.5 per cent. By the early 1970s, Beirut witnessed a significant influx of foreign investment, contributing to Lebanon’s industrial sector reaching 20 per cent of GDP in 1974. The civil war, unfortunately, disrupted these positive trends and led to a pause in Lebanon’s trajectory towards a development-focused governance model.

In the latest World Bank figures and forecasts of economic growth in the Arab states of the Persian Gulf, the economic growth of Qatar is 3.3 per cent, the UAE is 2.8 per cent, Bahrain 2.7 per cent, Saudi Arabia 2.2 per cent, Oman 1.5 per cent and Kuwait 1.3 per cent. The pattern of these countries is a combination of an interactive and non-confrontational, rational, realistic, pragmatic and cost-benefit foreign policy.

Furthermore, in the domestic arena, these countries have outlined a national strategy for economic development, leveraging their centralised governance structures. This has placed the Middle East in a novel position, with major powers, emerging forces and even trans-regional middle powers seeking collaboration actively with these developmental governments. Regional dynamics also connote indications of a strategic shift in the cooperation between trans-regional powers such as Russia, China and European countries with the evolving landscape of the new Middle East.

Persistent adherence to its ideological revolutionary stance has seen the Islamic Republic of Iran prioritise regime security over national interests, rather than emphasise economic development.

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Since the 1979 Iranian revolution, Tehran has shifted towards an ideologically oppositional stance against Israel, viewing it as an occupying power and a colonial project of the West that undermines Palestinian and broader Muslim sovereignty. In an effort to curb Israel’s regional influence and boost the regime’s security, Tehran has been fostering proxy groups, collectively referred to as the “axis of resistance”. They include Hezbollah in Lebanon (known for its forward defence approach), the Houthis in Yemen (considered to be Saudi Arabia’s Achilles’ Heel), and various groups in Syria (referred to as the arch ally) and Iraq (acknowledged for its strategic depth). This strategic approach signifies Iran’s intent and readiness to participate in a transnational conflict and elevate the stakes of Israel’s war against the Palestinians in the Gaza Strip.

An analysis of macroeconomic statistics during the 2010s indicates a notable weakness in Iran’s economic performance during recent decades. The data reveals a zigzag movement in economic growth, with the average growth figure hovering close to zero. During half of the 2010s, negative economic growth was reported, with two years experiencing growth less than minus 6 per cent. Additionally, statistics indicate that between 2012 and 2020, a total of $16.5 billion in foreign investment was attracted from direct capital and bonds. This trend implies that, fundamentally, foreign policy has not played a substantial role in the developmental process. Iran’s foreign policy remains limited by geopolitical factors and security imperatives, prioritising them over developmental goals centred on the economy, attracting foreign capital, securing development loans and engaging in international economic institutions.

Understanding the role of economic development in the contemporary Middle East introduces new imperatives across three key dimensions: strategic, economic, and security. Currently, foreign policy within the international political economy has established a direct correlation between a country’s development programme, its ability to attract foreign capital and secure development loans, and participate in international economic institutions, consequently influencing economic growth. In the development-oriented Middle East, economic strength has become a pivotal characteristic, leading many nations to engage strategically with others based not only on geostrategic and military superiority but also on robust economic foundations. This facilitates meaningful interactions in a globalised world. Moreover, Middle Eastern countries are positioned to partake in economic exchanges globally, playing a vital role in the “Global Value Chain”. Ultimately, aligning with these trends allows nations to bolster their security components and achieve strategic flexibility in foreign policy.

Given all of these facts, as long as the foreign policy paradigm of the Islamic Republic remains unchanged, the region and the people of Iran will continue to struggle with and suffer various challenges arising from the hawkish regional policy and halt all its developmental goals and achievements.

The writer is Visiting Senior Fellow at the London School of Economics in the International Relations Department, and Associate Fellow at the LSE Middle East Centre and IDEAS/Women in Diplomacy. Email: [email protected], X @motazedanahita

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.