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The growing instability in the Middle East

by Barbados Today
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Concern is growing about the happenings in the Middle East within recent times. Regarding that region of the world, and what occurs there, most Barbadians pay attention only to two aspects – terrorism and oil prices. Perhaps we in the Caribbean need to pay closer attention to a region that has been a hotbed of conflict for centuries.

The ancient Romans had a devil of a time with the province of Judea. The Romans were so concerned that they decided to uproot and scatter the Jews to every corner of their empire after a serious rebellion in the first century A.D. The Turkish conquest of the region in the late 11th century sparked the crusades. This resulted in the conquest of the region by Europeans in 1098, which created the kingdom of Jerusalem.

This enclave lasted a century until defeated by Salah ad-Din and the Turks in 1187. The Turks ruled the region for over 700 years until the end of World War I. The result of this global conflict led, not only to World War II but also formed the genesis of the instability in this region that has lasted until the present. The presence of oil only served to further exacerbate that instability.

Vast oil reserves were discovered in Saudi Arabia during the 1930s. The ruling Al Saud family came to power as a result of civil wars in the Arabian Peninsula which started in 1902 and ended in 1927. That period coincided with World War I. Britain and France had fomented an Arab revolt in Arabia which not only drove out the ruling Turks, but tied down thousands of their soldiers in that part of the world and this led to their defeat in 1918. The Al Sauds owe their emergence as rulers to the efforts of the French and in particular the British, who supported the Al Sauds in their fight for control of the Arabian Peninsula.

The discovery of oil led to closer cooperation of the new Saudi Arabia regime with the West, in particular the US, as the Saudis needed the money and technology from the west to exploit their vast oil reserves. It was for the control of these energy resources that has led to much of the instability and regime change in the region. Indeed, in the early 1970s, the Nixon administration entered into a secret treaty with Saudi Arabia to defend it in case of an invasion, in exchange for all of its oil sales to be done in US dollars. This action immeasurably strengthened the US currency on the world currency market, essentially ensuring that the US dollar remained the currency of international trade.

This treaty between Saudi Arabia and the US mentioned above saw its full expression during the First Gulf War in 1990 and 1991. Since that time, we have seen increased US military involvement in the Middle East. The pertinent question is why is this the case? The US, as part of the West, depends on cheap and reliable supplies of energy, which in this case come from the Middle East. However, there have been unintended consequences of the US involvement in the First Gulf War.

One unintended consequence has been the emergence of global terrorism – the bombing of the US embassies in Africa, terrorist attacks on US military ships in Arab waters, and finally, the destruction of the World Trade Center in 2001 after a failed attempt in 1993. The action against Al Qaeda in Afghanistan led to the further US war in Iraq. The involvement of the US in so many conflicts may have led indirectly to the US great recession in 2008.

Much of the activity now occurring in the Middle East makes military conflict increasingly likely. The Saudi Arabian war against Yemen’s Houthi rebels is essentially a proxy war between Saudi Arabia, a US ally, against the Houthi rebels, who are sponsored by Iran. In addition, Israel is now pursuing what appears to be a war against Hezbollah in Lebanon. Further, Israel plans to annex lands which they won via war and this has the potential of igniting the region into serious armed conflict. Furthermore, given that Iran may have access to nuclear technology and any restraints on it have dissolved, given the breakdown of the anti-nuclear pact made with the US, Europe and China, we cannot rule out the use of nuclear weapons in that part of the world, or worse yet, the possibility of such technology falling into the wrong hands.

All of these occurrences have created challenges which we in this region now face. There now exist networks of money laundering and financing of terrorism legislation around the world, and in this region, this has the potential of hobbling our ability to participate in international trade. The issue of de-risking, which is the severing of correspondent banking relationships, will eventually, if it is not challenged by our leaders, isolate us economically. The severing of these corresponding banking relationships has much to do with the compliance costs these international banks have with their regulators at home, and the fear that small countries such as ours may be used as a means of financing terrorist activity.

The possibility of serious armed conflict breaking out in the Middle East has risen dramatically with the attack on Saudi Arabia’s oil processing facilities earlier this week. The price of oil rose immediately on the world oil markets as a result. The implications of such news for oil dependent economies such as ours are serious. The Barbados oil import bill was BDS $700 million in 2018 and any price increases may disrupt our balance of payments, and just as importantly, increase consumers electricity bills. Barbados has been investing in alternative energy such as photovoltaic as a strategy in reducing its oil dependency. Perhaps we need to accelerate this trend.

Edward Hunte, an Attorney-at-Law, is the holder of an MBA with concentrations in Economics & Finance. He was also an economist with the Ministry of Finance and Economic Affairs; email: edlett@hotmail.com.

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