The Middle East is due for a reset

Avijit Goel | Updated on July 08, 2020 Published on July 08, 2020

The region must rise above proxy wars and forego and over-reliance on oil, if it is to avoid social unrest

For analysts tracking the Middle East for decades, every futuristic view or geopolitical stance articulated in the past would be prefixed with the common refrain: “unless there’s an unforeseen change-event”. Unexpectedly, the event is here, and it is finally time to think of alternatives.

Interestingly, like with all else in this region, before or after the current situation, making any prediction about the future is akin to writing it on the shifting desert sands. You wish for it to last at least as long as you can finish writing it.

The unpredictability of the region can be summed in a sentence, to quote Sir Olaf Caroe, (who had written for a different context and people): “The weft and warp of this land’s tapestry is woven into the souls and bodies of the men who move before it.”

For all the weft and warp of the Middle East, the last 12 weeks have been an interesting time of forced reflection. For hydrocarbon-based economies, this time has come as a triple shock. A global slump in energy demand, stuttering local economies and participation in draining and expensive proxy wars has left the larger players emaciated.

Take Saudi Arabia for example. In April, the price of oil hit a 21-year low at under $16 a barrel, at the height of the pandemic and a price war between Russia and Saudi. Both relented later, and prices recovered to some extent. Demand, however, stays muted and Goldman Sachs predicts that the global oil demand will not return to pre-coronavirus levels until 2022.

The pain of this is felt hardest in the local economy of Saudi Arabia, where an estimated 57 per cent of nationals work for the state, and any disruption here has an impact on employment levels and social security. Ironically, diversifying away from a reliance on the public sector is also funded by oil revenues. The state is now cutting expenses and raising debt at a most difficult time, given how the largely oil funded economy is floundering.

Add to this the cost of proxy wars in the region. It’s estimated the war in Yemen costs Saudi Arabia $5 billion a month (not calculating its involvement or support in other conflicts in Syria, Libya and Iraq).

The situation gets drearier in Iran, where a barely alive economy is confronted with US sanctions and a humanitarian crises. Social unrest is at its peak, and so is the unabated spread of coronavirus in the country.

The crisis and the possibilities of social unrest within the Gulf countries have given some strong signals for a reset within the region. While some are welcome, like countries staying away from expensive proxy wars, the social unrest looming on the horizon could spell a new disaster.

The wars in Yemen and Libya seem to have run their peak, and with proxy masters wanting to reallocate resources, these might see a gradual settling of alliances. The first signs of these are already visible, with the UAE — traditionally seen as aligning its foreign policy with Saudi Arabia — now seen taking steps towards rapprochement with Iran, much to Saudi’s chagrin. Apart from sending emergency medical care to Iran, the UAE has been publicly displaying its disagreement with Saudi on the proxy wars. Saudi has also expressed desire for a lasting ceasefire in Yemen.

While these might be welcome changes for the region, however, the vulnerable economies of the Middle East might be in for the most severe contraction of their remittance-based economies and a subsequent spread of social unrest. Egypt, Lebanon and Jordan, for example, face the most severe drop in remittances from overseas workers. Lebanon has already defaulted on a $1.5-billion debt repayment. With some of these economies having greater than a 10 per cent dependence on remittances, the looming crises and unemployment could stir widespread protests, which would be difficult for these weakened economies to contain.

With the depth of the Covid impact unknown, and economists amending their forecasts on almost a weekly basis, it remains to be seen what the future holds for the region: a continuum of the past or the beginning of a reset.

The writer is a geo-political analyst

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Published on July 08, 2020
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