War and Economic Crisis in the Middle East

Well, as most of y’all know, I’m not a big thread-starter. But I was asked to solicit some opinions on this subject, so I’m doing my best to be obliging.

First of all, a couple of links: ALERTE : Report des jeux de Marseille 2019-2020 - Les jeux de Marseille sont un excellent moyen de faire de belles rencontres
They’re a couple of articles detailing some of the current and recent serious economic difficulties facing Egypt and Lebanon respectively ( note the dire speculation in the Lebanon article ) Apparently there is a brewing currency crisis in the region even beyond these two, with many countries looking a bit shaky. Jordan is another country that is particularly vulnerable at this point - It has been getting oil for free for years under a special exemption on the Iraq sanctions and might not easily survive a sudden disruption. So the question is - Just what impact is this looming conflict going to have on the region from an economic standpoint?

A few things to think about - 1) I would imagine American and MENA markets tend to respond diffferently to different internal pressures. i.e. a short conflict just might calm American investor jitters. But that may not be the case in the ME. Long-term U.S. occupation, as many analysts have acknowledged, has at least the potential to be profoundly destabilizing, at least in the short-term, which could, conceivably, cause economic panic and resultant financial chaos.

  1. Bad economic crises tend to trigger domestic reaction. In the U.S. you might see a shift in party dominance in a mid-term or presidential election. But in the rather undemocratic ME, such domestic reaction is likely to be either more constrained ( if the authorities successively contain it ), or vastly more destructive ( if they are unable to ). As in the collapse of regimes, including such “friendly” ones as Egypt’s. Likely? Probably not. Possible?

  2. Even aside from the economic problems associated with side-effects, like say a spike in oil prices, obviously there is a real political threat to U.S. interests in the region from a prolonged regional depression or full-on economic meltdown. Both from the potential of a regime collapse noted above or simply street-level antipathy towards the U.S. ( and increased religious radicalization )growing. I know many might say “it couldn’t get any worse, so what does it matter?”, but I think that’s a simplistic assessment. It can indeed get worse.

  3. Of course, there are also some potential upsides - Some Gulf Emirates seem pleased at the prospect of potential rebuilding contracts in Iraq ( wonder if the bin Laden construction company will put in a bid? :wink: ). Further, regularization of the Iraqi oil market and the decrease in Gulf tension ( if it comes about ) could lead to some stability on that front. The ultimate argument of course is that long-term, greater regional stability will be promoted, leading to eventual prosperity. The question is how long-term? and how much damage will be done before then ( if any ) and what is the potential ( if any ) that it could be catastrophic?

Final points - The war is going to happen ( barring some pretty unusual devlopments beyond the control of anyone here, far as I know ), so this is not a “no war” polemic. As I said, I just had a request to start a thread to generate some speculation on the above.

I an not an economist. So my opinions aren’t necessarily worth much more than the price of a cup of coffee in Budapest. I’ll say that upfront before somebody starts haranguing me on the relative benefits of pegging dinars on a fixed or sliding scale to the euro vs. the dollar ;).

I loathe partisan hissy-fits. I’d rather not see one here. Just a request.

  • Tamerlane

[Removed broken link. – MEB]

Certainly Tamerlane, you strike me as being one of the most “reasonable” folks who post here, and as such, you deserve a thoughtful, respectful reply.

My immediate observation regarding both Egypt, Lebanon, and Jordan is how little effort has been made since WW2 by those countries to create societies which can function independantly of oil induced economic fluctuations. Obviously, the Western World’s economy is ALSO held to ransom by oil price fluctuations - but nowhere near as disastrously.

Firstly, the decision by Egypt to "float’ their currency is undeniably a good thing - painful as it obviously is at the moment. I’m forced to recall the similar decision by Australia in 1984 I believe it was. For at least 18 months afterwards, Australia’s trading position was seemingly dealt a death blow. However, slowly but surely, through sound fiscal management, and a dedicated effort at the Federal level to restructure key industries to be more competitive, we bounced back - to the point where the financial meltdown of South East Asia in 1997 didn’t seem to affect us at all because we had “hedged our bets” at a trading level over so many areas.

And it seems to me that any country which can concentrate on avoiding having “too many eggs in one basket” in terms of trading position is one which innately obtains a certain degree of immunity to world economic recessions etc.

Certainly, we here in Australia did it tough for a while, but the consensus now is that Australia’s economy, and out credit rating therein, is pretty darn robust.

Another example of a country which “reinvented” itself during the 1980’s was Ireland - now perceived as an economic success superstar story. My understanding is that the Irish did everything possible to invite a plethora of overseas investment in manufacturing facilities etc.

Still, it has to be said that Lebanon is a disaster waiting to happen, without doubt. By artificially living beyond it’s means, and worst of all, by allowing a truckload of violent sub groups to administer civil functions - such groups (who are more concerned with military fights with Israel than anything else) demonstrate an all too familiar pattern of utterly ignoring their own self preservation at an economic level.

And yet, what can we, the West do about this? We can point out all the logic in the world to Hezbollah and the Druze - namely, “Gentleman, unless you can put down your armed struggles and demonstrate a safe calm environment for foreign investment, you’re destined to end up being an economic sewer…” but gee, if they’re DETERMINED to ignore such logic, what can you do?

The very fact that the Arab Press still refers to the Lebanon-Israel border as the “Southern Front” sends all sorts of dire signals to me. It says that (Israel aside) nobody in Lebanon is giving a rat’s arse about their own well being, and that even after all these years, the latent desires of the 1948 war still ember away. Just madness, obviously. The message I hear is this… “We’d rather die fighting Israel than look after ourselves - and we don’t care who we bring down with us…”

As for Egypt? Well, it’s a classic example of a country which in reality should be soooooooooooooo far more advanced at an industrial level. However, as is so often the case in “one party countries” - a total focus on military strength without providing the economic means to sustain that strength has resulted in a country which has found itself ALSO living beyond it’s means. Nonetheless, it seems to be a more stable place than Lebabon, and as such, would theoretically be more inviting to foreign investment I should imagine.

Oddly, dissemination of the truth seems to me to be the real solution - in Lebabon in particular. The people on the ground, the actual civilians in the villages, they’re the ones who have to be contacted somehow - via Western television or whatever - but the message is simple… “People, unless you can organise a stable environment pronto, your country is going down the gurgler folks - and if you let the militants hi jack you again - you’ll be a sewer in just a decade… please help us help you…”

A local television station in country X in this region is trying to pay a local business associate of mine to appear as a daily guest on their show, whereby he will be asked: “So how was business today in country X?”

And he will reply: “Well business is booming as ever in country X, things are just fine, a, b, c happened today, everything is shiny and happy.”

This despite whatever the real situation is. So the domestic reaction to uncertainty in country X is panic, and paid propaganda.

Boo Boo Foo: First thanks for the thoughtful reply. But it is a bit off-topic ;). It is certainly true that Egypt and Lebanon have not exactly done a bang-up job with their economies ( though there are certainly better performers in the MENA than those two ), but that’s a little different from the question of what impact this current crisis will have on those uneasy economies as it stands today.

The question is, will Lebanon be the first domino and perhaps Egypt the second? i.e. How serious is the risk that a a few months of chronic political instability might cause a panic that starts a serial implosion of regional economies, with each subsequent banking failure/severe inflation/general currency collapse triggering another? Is this a realistic scenario? I’ve been informed it is a realistic scenario, albeit maybe not the most likely one. Egypt’s may be an unstable economy, but it is significant one in terms of regional impact - much more so than Lebanon today. If it goes under, it really might be a mighty big rock in a smallish pond. Can the U.S. and whatever allies help contain such a catatstrophe? Will the current diplomatic…difficulties…hinder any such attempt in a serious way? What would it add to the cost of the war if such became necessary? What is the political cost if it is not contained?

etc. :slight_smile:

Though on the topic of currency control, you might find this article interesting: http://www.menafn.com/qn_local_detail.asp?news_id=919

istara: Not all that different in kind from some talking heads I’ve seen on American media shows ;). Still, you’re correct that willfully pretending there is no problem is no solution. Especially in unfree and partially unfree nations, where an accumulation of obvious lies can have a disruptive effect on public sentiment with possibly dangerous results.

  • Tamerlane

Oh and if a moderator sees this, perhaps a more clear title for this thread might be “War and Economic Crisis in the Middle East”.

Thanks :).

  • Tamerlane

Oh and maybe edit out that superflous link to a sent e-mail I somehow stuck in there ;). A bit confusing.

clearer-clearer-clearer ( “more clear” - jeez :stuck_out_tongue: )

  • Tamerlane

Dopey Me! :smiley:

As for the prediction side of things Tamerlane, forgive me… I didn’t interpret your opening thread the right way. Sorry.

I have to be honest and admit that I tend not to be too good at the predictions.

But I will say this… for all of the supposed wealth that oil brings to the Middle East, it appears very, VERY little of it is used wisely to the benefit of all involved.

Most importantly, I see few, if any, displays of altruism by countries in the region who are “superstar” wealthy through oil sales towards other Arab countries who aren’t lucky enough to share such natural bounty.

I would suggest that Egypt is quite stable ultimately, and can be propped up by the West in the abscence of help by the Gulf Oil states.

Syria, conversely, through her proxy Lebanon, is the unknown. She is effectively locked in by Turkey, Iraq, the Meditterranean and Israel… so I’m unconvinced that a political meltdown in Syria would cause “limitless” ramifications, if you know what I mean.

Still, I’d love to hear from our fellow Dopers who are much more knowledgeable than myself.

And once again, sorry Tamerlane. But I’d like to hope that at least I write well, if slightly off topic! :slight_smile:

While we await the remarks of a certain well-informed poster, I’ll add my 2 cents. Realize, we need a regional expert here, and I am not that.

  1. I couldn’t link to the Mena Report. I don’t even know what “Mena” stands for. Judge this post accordingly.

  2. From the Economist’s “World in 2003 Report” (probably written in Oct 2002), I see that although Jordan is in for some political difficulties, there are offsetting factors. a) The Jordanian king is admired by most and b) most do not like Saddam, whatever their opinions about the US.

  3. Moreover, while regional tensions may chase away investors, a reformed Iraq could become an important export market to Jordan. There are a number of Iraqi refugees/exiles in Jordan: when they return to Iraq, many will use their knowledge of the Jordanian economy to facilitate trade, within the year (timing is my WAG).

  4. I understand that Saudi Arabia is making up for Jordan’s loss of cheap oil from Iraq. Others can speculate about the longevity of such an arrangement.

  5. I see from your article that Jordan has a pegged exchange rate. I’m not sure what that means: if there is a thriving black market so that the official rate means very little, then an official depreciation shouldn’t be too bad. (I think.) If that is not the case, then they have a potential financial crisis on their hands. Still, this problem is a separate one.

Jordan also has a large debt/gdp ratio. Quite large.

  1. Egypt will sustain the negatives (lower international investment) without the positives, as far as I can tell. They have a population over 10 times that of Jordan (68 million vs. 5.5 mill), so their problems can’t be papered-over with a well-timed infusion of extra aid.

  2. More generally, remember that oil supplies are tight, notwithstanding the recently sorted-out Venezuelan crisis. So don’t expect a return to $20 oil any time soon.

Beats me. How closely are the countries tied together? What is each respective country’s exchange rate policy like? If international investment flows collapse, does it matter? Smallish pond: yes, the economies of Egypt, Jordan and Lebanon together are a little over half the size of Saudi Arabia: the latter clocks in at about $200 billion (US= $10,000 billion).