By: Herb Keinon – The Jerusalem Post

With the global financial hurricane still raging, it is clear to all that everyone and everything is going to get wet. The real question is how wet.

Take, for instance, the Israeli economy. No doubt we will all be affected by Wall Street’s storm, as will nearly every country in the world. No doubt a deep recession is around the bend, and we will feel it – maybe less than folks in the US, certainly less than those in Iceland, but feel it we will.

In Jerusalem, however, where concerns are primarily existential and not merely economic, another question is asked: How will all this impact on the Arab-Israeli conflict, and what will it do to the diplomatic process?

And even though we are in the midst of the tempest and it is too early to predict all the consequences, it is obvious that the financial crisis will have an impact on international relations, on the balance of power, on new alliances. Some have said we are now witnessing the seminal event of the young century, and that the ripple effects will be felt far and wide.

First of all, the crisis is already having an impact on the diplomatic process by having an impact on the domestic political process, both in Israel and in the US.

In Israel, the global financial meltdown will make it easier for new Kadima chairwoman Tzipi Livni to form a government. Granted, Shas and, to a lesser degree, the Labor Party are kicking and howling on their way into a Kadima-led government, but in the final analysis, they will both likely join, using as an explanation to their respective voters the need to “act responsibly” and ensure a stable government at this economically volatile time.

The crisis is also having a dramatic impact on the US presidential election, with Barack Obama opening a 9-percent lead over John McCain in the polls, a gap the pundits explain is due primarily to the economic situation. And the conventional wisdom is that an Obama administration would take a much more activist approach to the Israeli-Palestinian conflict than a McCain administration.

Well, at least on paper. In reality, an Obama government is likely to be so tied down dealing with the economic crisis that even if the new president and his team of veteran Oslo Accord hands would like to dive right into the Middle East conflict, the attention both of the administration and of the American public will be otherwise engaged. With banks collapsing, stocks falling, and the real estate market a shambles, it seems unlikely an Obama team – or, for that matter, a McCain team if things should reverse themselves in the next four weeks – will have a lot of attention or energy left for the Middle East conflict.

And they would not be alone. If Livni does indeed succeed in putting together a government, its top priorities will no longer be the Palestinian track, or even the Syrian track, but rather the economic track.

The disappearance of trillions of dollars worldwide will also make it difficult for the international community to pay for an Israeli-Palestinian, or Israeli-Syrian, agreement, even if they miraculously appear. Who would pay for the tens of billions of dollars worth of new early warning systems Israel would have to set up following deep withdrawals from the West Bank and Jordan Valley, or a complete withdrawal – as the Syrians are demanding – from the Golan Heights?

Who would pay compensation to Palestinian refugees if an agreement were reached that would deny them a “right of return” to pre-1967 Israel, but would recognize their right to compensation? Who would pay for the Palestinian security services or fund the infrastructure if a Palestinian state were agreed upon?

The US? After this month, forget about it.

Europe, the oft-looked-to Middle East payer? Hard to believe that, considering their devastated economies, Europe will be anywhere nearly as generous to the Palestinians in the future as they have been in the past.

The Persian Gulf states? Even in the best of times, it was difficult to get those countries to do more than pledge money to the the Palestinian Authority. But now, with oil revenue at nearly half what it was a few months ago and the stock markets in the Arab countries slipping badly along with the rest of the world’s markets, don’t expect them to step up and fill in the gaps for the Palestinians.

In addition, with the governments of the world now preoccupied with their own economies and the resulting domestic fallout, the importance of solving the Israeli-Palestinian issues right now will likely fade. That fading interest could have negative consequences of its own, because the Palestinians will struggle to make sure their issue does not recede, that it stays front-and-center on the agenda. And if history is any indication, the way the Palestinians keep their cause on the international radar screen is not through letters to the editor or civil disobedience, but through terrorism and other violence.

And that’s how falling stocks on the Frankfurt Stock Exchange could lead to falling rockets on Sderot.