For decades the Middle East has been ruled by totalitarian regimes. The United States’ foreign policy toward these regimes has been determined largely by two factors: The oil reserves in these countries and/or their policy toward Israel. Indeed, until Saddam Hussein invaded oil-rich Kuwait he was not considered a threat. After all he was a sworn enemy of Iran.
Many times the United States has found itself on the wrong side of principle by supporting regimes with terrible human rights records and not a shred of democracy. But this is the way of international relations. For decades democratic India was more closely allied with communist USSR while the United States was a closer friend of non-democratic Pakistan. The situation changed only about a decade ago.
It is difficult to make too strong a moral judgment about U.S. policy toward the Middle East given not only the importance (to the United States) of the two factors mentioned above but also the fact that regime change in the Middle East has some important political and security ramifications. When the Shah of Iran – who brutalized his political opponents and was fully supported by the United States – was replaced by an Islamist regime, the United States gained a determined and well-entrenched enemy. One form of tyranny was replaced by another.
The focus now is on Egypt, a country that is not a large oil producer. A popular uprising without any clear leader or figurehead has taken the country by storm, challenging the three decade-old regime of Hosni Mubarak. Mohamed El-Baradei – the ex-chairman of the International Atomic Energy Agency – has entered the fray flying from Vienna to Cairo on Thursday, January 27. The next few days in Egypt promise to be interesting. The United States for its part has now officially called for political, social and economic reform in Egypt. Three decades late it seems.
The common thread throughout the Middle East is that most countries are ruled by repressive regimes. (Figure 1). It is also true that in most countries there exist diverse dissident movements that yearn to break the shackles of the current regimes.
Figure 1. Middle East & North Africa.
Click to enlarge
Click to enlarge
Table 1. Middle East and North Africa Countries Classified by Degree of Freedom
Morocco, Lebanon, Kuwait
Western Sahara, Algeria, Tunisia, Libya, Egypt, Iraq, Jordan, Israel Occupied Territories, Palestinian Territories, Syria, Saudi Arabia, Yemen, Oman, Qatar, UAE, Bahrain, Iran
In country after country, the dissident movements are led not necessarily by democrats, but in many cases Islamist movements hostile toward the United States. Many of the regimes are secular like the overthrown Ba’ath party of Iraq and the ruling Ba’ath government in Syria. While Saddam Hussein was embraced by the United States for his enmity toward Iran, at least up until the invasion of Kuwait, the Syrian regime has been at odds with the United States and Israel. Syria is also not an oil-rich country. Other secular regimes are those in Algeria and Morocco.
Countries like Saudi Arabia are run according to a strict interpretation of Islam. Yemen is a prime example of the complexities of Middle Eastern politics because no one is really sure whether Al Qaeda is truly a grave threat or whether the threat has been manufactured by the ruling regime as an excuse to crush opposition and to gain U.S. financial aid.
The Middle East is a complex region of many intellectual, social and political currents. In many countries the ruling establishment is far removed from the existential realities of the majority. All of a sudden now, we see protests in countries as far flung as Yemen, Egypt and Tunisia. There is the possibility of new uprisings in Algeria. Could this be a new phase in the political and social development of the Middle East? Might the unthinkable happen in Iran?
Any drastic changes in Middle Eastern political arrangements have broad implications for the rest of the world. Nowhere would the consequences of radical political change be felt more than in energy markets, at least in the immediate aftermath. What are the possible scenarios and what would be their effects?
Scenario 1. The uprisings in Egypt and Tunisia are contained either through concessions and/or brutal measures by the government. It seems unlikely, however, that either government will be able to get away with too much brutality. Given that none of these countries are oil-rich the effect on oil prices should be negligible.
Scenario 2. It seems most likely that the regimes in both countries are on their way out. The pressure will now be on both governments to make concessions to their people and make amends for the appalling economic performance and widespread kleptocracies that have robbed their people of material wealth for decades. The change may not occur overnight, but the process is clearly underway toward the exit of the existing regimes in both countries.
Scenario 3. The events in Tunisia, Egypt and possibly Yemen electrify the populations of countries in the Middle East, spurring popular uprisings across the region. Governments throughout the region give way to new leaders and systems of government and the ensuing uncertainty results in runaway oil prices. Highly unlikely.
While it is unlikely that the unrest and protests will spread rapidly across the Middle East, I believe the seeds of change have been sown in some of the countries in the region. Over the next few years the effects of change in a few countries will spread to more countries in the region. In the immediate future it is unlikely that there will be radical political change in any of the countries of the Middle East. I, however, remain hopeful about Iran.
Most probably the politics of the region will not have much of an effect on oil prices. This is especially true because the countries making the news right now are not large oil producers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.