How well is the Middle East placed for an unwinding of the commodities super-cycle? What are the social and political effects likely to be?
As many analysts anticipate a global downturn, the Middle East appears as vulnerable as any region to further instability. The social disparities heightened by the oil boom seem likely to be stoked rather than placated, although inflationary pressures will ease.
Even the GCC states – fiscally comfortable unless oil dips very sharply – have relatively high unemployment and, with 42% of their populations under 15, huge numbers of young people due to enter the labour market every year.
And the limitations of the GCC banks’ balance sheet are already showing, with waning liquidity leading government authorities into making multi-billion dollar injections. It seems a long year since the Abu Dhabi Investment Authority ploughed $7.5 billion into Citigroup.
Oil has dropped from a record high $147.27 reached in July on signs that high energy prices and the financial crisis have cut into crude demand in top energy consumer, the United States, and as investors – who rushed into commodities earlier this year as a hedge against inflation and the weak dollar – sold crude for safer havens.
A weaker economic growth outlook in Asia, where China’s voracious energy demand has helped underpinning oil’s gains in recent years, would also cast a pall over medium-term crude demand.
But the problems of the wealthiest Arab states may be far less pressing in a global downturn than the problems of the poorer states, where expectations have risen in the years of the oil boom.
Across the region, youth unemployment is close to 25%, double the global average. A World Bank report earlier this year – A Road not Travelled – put overall unemployment at 14%, higher than every region except sub-Saharan Africa. It found 23.7% out of work in Algeria, 19.3% in Morocco and 25.6% in the West Bank and Gaza (25.6%).
The Bank insisted that the quality of education in the Arab world had fallen behind other regions and needed urgent reform if the region wanted sustainable development.
If the GCC had been somewhat smug over the rest of the world’s problems, Iranian president Mahmoud Ahmadinejad was positively crowing over the US financial woes on his recent trip to New York. But Mr Ahmadinejad’s plans for re-election next year hinge on curbing unemployment, which has become a major political issue. It looks as if he will have to do it with diminishing oil revenue.—G.S.