When the Gaza war began last October, Jordan’s economy was hardly in tip-top shape. Indeed, it appeared to be a house of cards waiting to be toppled by shock waves from the conflict. Much, it seems, depends on restoring a semblance of peace to the region.

Read It and Weep

The Jordanian economy had already been stagnating for over a decade, with GDP per capita growth running at a snails-pace average of 0.5 percent annually since the Arab Spring in 2013. In fact, the troubles predated that unrest.

When the Syrian civil war began in 2011, Jordan was still struggling with the fallout from the implosion of neighboring Iraq in the wake of the American invasion in 2003. The indirect economic impact of the Syrian crisis between 2013 and 2016 cost Jordan an estimated $12 billion — about a tenth of GDP per year. And the fallout from the collapse of Syria continues. As of 2019, Jordan’s direct and indirect costs of hosting Syrian refugees was close to $8 billion. By no coincidence, the World Bank reclassified Jordan from upper-middle-income to lower-middle-income in 2022 — an almost unprecedented slip backward.

Wait, there’s more. Covid-19 paralyzed tourism in 2020, which had accounted for 10 percent of GDP. Although growth returned in 2021, the economy was far from healthy even before October 7. In 2023, unemployment exceeded 20 percent, with youth unemployment double that.

And there’s still more. Jordan’s economy has been hit exceptionally hard by climate change, with scorching summer heat and water scarcity becoming increasingly problematic. Droughts and shifting precipitation patterns, which have led to over-pumping from aquifers, have long been threatening the kingdom’s fragile agricultural base.

Echoes of the Arab Spring

The economy’s pummeling has led to widespread street protests. Actually, this has been a recurring issue in Jordan since the Arab Spring, but reached new heights in 2022 with protestors testing the established “red line” in this fairly benign authoritarian state, daring to challenge the legitimacy of the dynastic Hashemite monarchy. Demonstrators have accused the government of corruption and inefficiency. And they don’t seem willing to settle for the standard boilerplate of reform promises and cabinet changes.

It hardly helps, of course, that the authorities have offered little of real substance. But it’s far from clear that better leadership would matter much. Jordan cannot throw money at its myriad problems — the budget deficit is almost unmanageable, even as public debt reached 100 percent of GDP in 2023.

The only real hope is accelerated economic growth fueled by growth in services and foreign investment. But in this context, the Gaza war compounded an already difficult position. The tourism industry, still recovering from Covid-19, now faces the loss of half its bookings in 2024. 

War-related disruptions in the region have impacted the trade and transportation sectors, increasing the prices of shipping, insurance and delivery because of restrictions on the movement of goods and internal trade. But in the long run, the indirect costs of the war may prove more significant. The Gaza war has significantly impacted the delicate balance between Jordan and Israel over water and energy.

Water, Energy, Survival

In November 2021, Jordan and Israel inked a water-for-energy agreement to help alleviate the effects of climate change. The agreement called for the United Arab Emirates to develop centralized solar power in Jordan, taking advantage of the country’s 300 days of sunshine per year. The plant’s yearly solar energy exports to Israel will total 600 megawatts, valued at $180 million. Israel will provide 200 million cubic meters of desalinated water to Jordan as part of the agreement.

The proposal had a scheduled ratification date in October 2023, but Jordan announced on November 15 that it would back out of the deal. As the top diplomat from Jordan put it, “Could you envision a situation where a Jordanian minister is seated alongside an Israeli minister to sign a water and electricity agreement, while Israel persists in causing the death of children in Gaza?”

Jordan’s future stability is thus more dependent than ever on the chance of a two-state solution, failing which the government fears another wave of Palestinian migration. But any progress toward a Palestinian state depends on a change of government in Israel and the rise of younger, more competent Palestinian leadership. Can the Jordanian house of cards stand that long?