Obama Signals Rocky Road for Middle East Peace

It has almost been two years since US President Barack Obama took the stage at Cairo University, reaching out to a mesmerized audience and seeking "a new beginning between the United States and Muslims around the world".

President Barack Obama
Photo by: Pete Souza
President Barack Obama

There was considerable fanfare in the Egyptian capital, heralding the arrival of the man who swung to power by calling for the audacity of hope.

Last week’s speech from the more remote US State Department in Washington reaffirmed certain notions of the status quo, but also shed light on the rocky road ahead for both local and foreign investors in the Middle East.

"All of us have a responsibility to work for the day when the mothers of Israelis and Palestinians can see their children grow up without fear," Obama proclaimed in 2009.

And yet, the peace process is as far away from a conclusive deal as ever. Obama’s audience in the Arab World feels confused, suspicious, even disenchanted with US foreign policy.

Consider that the number of Egyptians huddling around makeshift tables at local ahwas, or coffee shops, was visibly less this year.

His speech did surprise a number of analysts in that he called for a Palestinian state based on pre-1967 borders, a statement that drew a firestorm of criticism from the conservative Israeli political sphere.

In his American Israel Public Affairs Committee (AIPAC) address later, he maintained that any deal would include mutually agreed lands swaps.

Gamal Soltan, Director at the Ahram Center for Strategic and Political Studies in Cairo, told CNBC that he believed the US administration was sincere in its intentions, but doubted that they were serious in terms of providing the necessary leverage and resources to push a plan through.

"I’m not sure, I doubt it," Soltan said. "The Obama administration is facing a lot of constraints domestically. In the Middle East as well, the pieces of the puzzle are much more fragmented. There’s a lot of energy needed to achieve this vision".

Investor Uncertainty But others were more skeptical of progress in light of comments by the Israeli Prime Minister, Benjamin Netenyahu.

"I think it is rhetoric," Khaled Al-Maeena, Editor-in-Chief of Arab News, told CNBC.

He added that the US is a signatory to Resolution 242 and 338, "but it does not have the clout - because of internal US politics - to ask Israel to implement them."

There’s more to draw from the speech. A lot of questions were afloat earlier, including how Obama would be able to balance supporting pro-democracy movements with retaining time-honored alliances that have helped defend strategic US interests, such as the access to crude and the containment of Iran.

Although Saudi Arabia was not mentioned, to the delight or dismay of oil market players, changes may be inevitable.

Al-Maeena agrees. "The reforms are a must. Young people should be given a say. I think people in the Gulf followed very carefully references to change and they were satisfied with that part," he said.

Obama made it clear that "it will be years before this story reaches its end". The administration likely accepts the situation in the region as an unavoidable historical stage.

At the same time, some political analysts argue, it does mark an intriguing departure from the normative US strategy of consolidating alliances with regimes.

"In the long term, this will better for the region and the United States," Soltan said.

Mohamed Yasin, CIO at CAPM Investment in Dubai, believes that many foreign investors will remain on the sidelines, particularly after what happened in Egypt, an emerging market that by regional standards enjoyed high levels of liquidity.

Despite promises of economic aid to Egypt and Tunisia, Obama’s speech may not help assuage fears, according to Yasin.

"I think if anything it’s preparing people for tougher times to come and that’s not good for investor sentiment. I think what’s going to happen is that each market will start to look within for opportunities," he explained.