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The Middle East Crisis: Analysis of Middle East Events - Egypt, Tunisia, Libya, Bahrain, Yemen, Lebanon, and Israel

CEO Interview

Middle East Analysis
Global Risks and Mitigation Strategies
Analysis of the Changing Political Landscape

This section sponsored by Dubai Annual Investment Meeting

An Interview with Med Jones
(Feb 18, 2011)

The Middle East Crisis: Analysis of Middle East Events - Egypt, Tunisia, Libya, Bahrain, Yemen, Lebanon, and Israel

Q: What is your outlook for the Middle East?

The Middle East will continue to go through socioeconomic reforms. The change in some countries will be faster than the others. The unrest has spread from Tunisia to Egypt, Jordan, Libya, Algeria, Bahrain, and Yemen. We also saw rising tensions in Kuwait between the parliament and the Prince and the civic movement by the stateless Arabs. Saudi Arabia's king is old and the power transition period can be critical. There are deep social tensions in Saudi Arabia; they could be brought up to the surface by the high unemployment rate and widening gaps in wealth and power between the populations.

As for the two main non-Arab countries in the Middle East, Israel and Iran:

Israel is under tremendous security, political and economic pressures caused by the loss of Turkey and its main Arab allies, the disillusionment of the Palestinians with the peace process, the increasing tensions with its neighbors, the diminishing power and influence of the US, and the increasing size of its own disenfranchised populations of African and Arab origins. All these factors present formidable challenges to Israeli policy makers.

Iran has more than 30 million people living under the poverty line. The problem is exasperated by the enormous pressure imposed by the economic sanctions driven by the US and Israel. We saw the mass protests after the last elections and the recent demonstrations inspired by Egypt's uprising.

The region is under a pressure cooker. If cooler heads do not prevail, we could see a conflict that could damage the region and cause a global economic recession, especially if the oil production or transportation are affected.

Q: What are the driving forces behind the Middle East unrest?

Although the protesters in Egypt and neighboring countries are calling for democratic reforms, in reality they are calling for a better economic life. Democracy is only a means to an end. I believe the driving forces behind the Tunisian and Egyptian uprisings are economical. A chronic high unemployment rate combined with an inflation in food prices is a volatile mix that can lead to major civic outbursts.

To understand what is happening and what is going to happen you need to look at inflation as a force of pressure. If the socioeconomic system of a country is open and democratic, the pressure will dissipate through elections and peaceful change of government. On the other hand, if the system is closed, it might be able to contain the pressure for a while, but the pressure will build up with time and at a certain point it will exceed the strength of the system causing it to crack. We saw it in Tunisia and Egypt. In other nations, this pressure release may take other forms such as racial, ethnic, or religious conflicts.

Rulers who learn from history and create a socioeconomic system that is open will achieve stability and continuity. Those who fight against the socioeconomic laws may win some battles in the short term, but will lose the war.

From a global perspective, what is happening today is simply part of the process of moving towards the new world order and part of the shift of power from the West to the East. The Middle East is at the center of that change.

Q:  Do you think the sectarian conflict in Bahrain could spread to neighboring GCC countries?

On the surface, it appears that what is going in Bahrain is sectarian, in reality it is economic. Egypt's ex-President, Hosni Mubarak, alleged that the unrest was incited by external forces and governments. He missed the real causes of the unrest and now he is out of power. Many analysts are confusing the cause with the effect. The cause is the economic conditions and the distribution of wealth; the effect is sectarian, political, national divisions and unrest.

From a psychological point of view, when people go under pressure in life, be it economic or otherwise, they seek support from the people closest to them, usually religious or ethnic groups. They also start blaming other groups who have more control over the national resources. If the gap of power is wide, this will eventually create deep divisions in the society. The divisions can take on new forms of conflict such as class warfare, ethnic, religious, political unrest and at times civil wars. The only effective protection against national divisions is an open socioeconomic system with a large and growing middle class.

The same thing happened in Lebanon during the civil war in the 70s. The conflict was between the poor Muslims and the ruling Christians. People on both sides of the conflict used religious or sectarian slogans to amass support to win the fight. On the surface, the Lebanese civil war looked like a conflict between Christians and Muslims. Initially the people in power alleged that the Palestinians are the cause of the civil war in Lebanon, but when the Palestinian forces left the country, the war continued. By the end of the civil war Christians were fighting each other and Muslims were fighting each other. It is a classic struggle for power between different groups and factions of the society. A sustainable civil peace in Lebanon is not possible without creating a secular state with an open socioeconomic system allowing equal access to jobs and economic opportunities to all the segments of its population.

Sustainable prosperity and stability of the nations in the region cannot be realized without re-engineering their state models to more open socioeconomic systems allowing equal access to national resources and opportunities instead of the current closed systems based on tribal, ethnic, or religious quotas.

Q: How will the Middle East unrest affect the global economy?

Most analysts think this is a Middle East problem and the people of the region are demanding democratic reforms. I see it differently; I see it as a global problem requiring global monetary and economic reforms. This wave of unrest did not start with the Middle East and will not end there. The unrest could spread to other regions around the world, although at different pace and in different forms. The spread of the unrest is determined by the rate of the economic decline, unemployment and inflation in each country. Just look at what happened in Greece, we saw similar unrest by the citizens against their government. The country would have failed, if it was not for the massive bailout by the European Union (EU). Similar violent protests happened in the UK by students in response to the proposal of the government to increase tuitions. These events are simply the after effect of the global financial crisis and long term wrong economic policies.

Q:  How could the world leaders mitigate the contagion risks?

If the global economic engine is restarted and inflation is controlled, the instability can be limited. If the recovery experiences new setbacks and inflation becomes hyperinflation, many countries could see civil unrest. We could also see more international conflicts.

One quick and effective solution to the global economic crisis is a global economic and political reset. A global economic reset means that world leaders can come together to agree on debt forgiveness to all nations and restructuring of the global economy. Friends and enemies alike, no exceptions. To be fair to nations with lesser debts, they could be compensated on a fair ratio basis to enjoy treasury surpluses. A new international trade and reserve currency will probably be established to create a fair global economic system and to implement the reset. This could usher a new era of global prosperity and socioeconomic exchange. This is a much better alternative than currency wars, international hostilities and continuous risks of global socioeconomic shocks.

Without peaceful international relations, there could be no economic stability and prosperity. On the political front, world leaders and UN veto-holding members could reset their foreign policies and stop burdening their economies and their people with international conflicts. The UN international court of justice could be responsible for resolving international conflicts.

The implementation of this solution requires a strong global leadership vision and action. Unfortunately the US leadership is limited by many conflicting private interest groups and is buried in domestic politics, ideological conflicts, and security issues. It is also unlikely that the global powers will let go of their power voluntarily and the situation will not get better before it gets worse.

Q:  The US was hit several times with recessions and inflation, why didn't we see the similar unrest?

In the US we had our share of civil conflicts driven by economic forces. The European immigrants brought slaves from Africa to use them as cheap labor for farming their lands. The color of the skin was only a rationalization for the continuation of the slavery system. All the segregation and discrimination rules against the blacks, at that time, were made to preserve the existing economic system and the interest of its beneficiaries. Although history books attribute the American civil war to states and civil rights, the driving force behind the war was the conflict of economic interests.

American rulers learned their lessons early on and created a socioeconomic system that allowed a free distribution of wealth and power. Today, we have a black president, we have more people leave their parent's economic class and become richer regardless of their religious, ethnic or national background. Despite having more diverse people in our society than any other nation, we have more stable national politics. If our elites try to limit the openness of the socioeconomic system, the system will be corrected in any number of forms including civic unrest. When Bush's administration invaded Iraq and bailed out Wall Street, the people brought in Obama. When Obama bailed out Wall Street again and considered raising the tax on the people, the people brought the Tea Party into power and the ruling party lost control of the Congress. Corrections are made via peaceful elections.

When people have hope that their economic conditions can improve by simply working harder, they care less about politics, race and religion. They may not like many things in their society but they are unlikely to get angry to a point of violent uprising or dividing the country. When people feel stuck or when they are poor and do not have much to lose, they are more likely to rise against the people in power, even if they belong to the same ethnic, religious or political group.

Q: Is it safe to say that there is no risk to the US national integrity from high unemployment rates and rising inflation?

The integrity of states is ruled by the socioeconomic integrity theory. The degree of the stability of any social system is proportional to the degree of its economic growth and vice versa. Stated differently, the risk to national integrity increases proportionally to the country's economic decline.

When the members of a sociopolitical system share the same economic interests and the existing system produces enough economic opportunities to meet the needs of the members, they are likely to tolerate existing differences and work together towards shared benefits.

On the other hand, when the system fails to produce enough economic opportunities over a long period of time, the members of the system are likely to compete more aggressively for existing resources, causing divisions among the members to grow stronger. The degree of social cohesiveness will diminish and divisions could take different forms such as ethnic, religious and geographic conflicts and at times class warfare or civil wars. If not managed properly, such sociopolitical systems can become dysfunctional. If the dysfunction is left untreated, at a certain point it will take more energy to fix the system than to let it collapse.

History teaches us that people from different religions and ethnic groups can be united around one shared economic goal; equality and prosperity for all. We saw that in the rise of the communist USSR. When the economic policies of the USSR failed, ethnic and national divisions took the forefront and the USSR was dissolved. That can happen to the US if we are hit hard enough by hyperinflation and currency collapse. How the divisions evolve and what forms they will take depend on the type and speed of  the government's reaction. It is too early to foresee such events. However, it is important to note that no country is above the socioeconomic laws, US included.

Q: You mentioned that wrong economic policies can cause international conflicts, can you elaborate on your statement?

The inflationary pressure forces and socioeconomic laws are also applicable to international relations. The historical crusades against Muslim lands, the colonization of Spain by the Muslim Moors and India by the British were all driven by economic interests, despite the advertised reasons that were used to mobilize their armies at the time. In my opinion, the invasion of Iraq was not about spreading democracy or weapons of mass destruction, it was about the oil. Iraq has one of the world's largest proven oil reserves. Oil is a strategic US economic interest, especially with the rise of China and India, and rise of the global demand for energy resources. The division between the Kurds and the Arabs of Iraq is driven by oil. The division of Sudan between the north and the south is driven by the control of natural resources.

Throughout history, national and international conflicts can be traced to economic reasons, they can be disguised under different propaganda and may take different forms as conflicts evolve, but these forms are the effect not the cause.

Today, there is a lot of tension behind the scene between major powers on global economic and monetary policies. Currency wars could eventually lead to physical wars.

International media must look beyond the declared reasons for international conflicts. It is the duty of journalists to explore all angles, so the attention of the people is not monopolized by any single point of view.

Q: What is your economic outlook for Israel?

Israel has the same problem, about 20% of the Israeli population lives under the poverty line, the reason you do not hear about their problems, is because they are focused on an external enemy and they get very generous annual US economic support. However their socioeconomic system is unsustainable, especially with rising tensions with their neighbors and the decline of the US power.

Like other countries, Israel's economy was hit by the US financial crisis. Israel has a population of about 7.5 million. About 20% live under the poverty line, mostly marginalized Israelis of Arabic and African origin. The country has limited natural resources and is in constant sate of conflict with its neighbors.

Israel's survival and economy are highly dependent on US support. Israelís public debt is almost 80% of its GDP. Half of that is external debt owned mostly by the US. Israel is the top recipient of US foreign aid. Even the US economic aid to Egypt and neighboring countries is made to support the peace agreement with Israel. Israel's supporters in the US Congress and the White House are pushing to increase US foreign aid to Israel, despite US plans to cut domestic spending. In 2010, President Obama's budget appropriated $3 billion for Israel and gave another $3 billion of loan guarantees. There are more than 600 companies listed on Tel Aviv Stock Exchange and Israel has the most foreign stocks listed in New York. Based on the aforementioned data, it is unlikely that the country can survive without US support and is highly vulnerable to US economic shocks and geopolitical risks.

From a long-term standpoint, if you consider the cycle of rise and decline of countries throughout history, Israel reached the height of its power cycle in the late 1990s. They missed two golden windows of opportunity to make peace with the neighbors and hold maximum gains by sacrificing some land for peace. The first opportunity was missed in 1995 with Rabinís assassination by Jewish extremists. The second opportunity was missed by rejecting the Arab peace initiative in 2002. I see a rise in ethnic and religious fundamentalism in Israel and Anti-Israeli sentiment around the world. Traditionally, Israel used excessive power and fear as a strategy to ensure the security of the state. However, after their failure in 2006 war with Lebanon, it became clear that the barrier of fear has been broken and power gap has been reduced significantly. The dynamics of the conflict is entering a vicious cycle that can cause a lot of damage to the countries involved, US included.

In the age of global knowledge and socioeconomic exchange, goodwill and trade relations are far important to national prosperity and security than land or military power.

Socioeconomic systems that are built on exclusive ideologies, religious or ethnic purities are breeding grounds for extremism and will eventually lead to civil and international conflicts. Those countries must change or fail. If the Israeli elites are betting on the passage of time for the Arab people to get tired of the Palestinian cause, they just need to remember that the Moors occupied Spain for more than 700 years and they eventually were driven out by the Europeans. The only way for Israel to survive in a region surrounded by Arabic and Islamic countries is to make peace and integrate with their neighboring countries.

The Israeli-Palestinian conflict is one main source of negative international politics, terrorism and tensions between the US and about two billion Muslims. By solving this conflict, a major part of national security problems, along with the human and economic costs of future wars can be avoided by the Israelis, Americans and Arabs alike. Without peace, Israel is increasingly becoming a financial and psychological burden on its allies and its own population.

I foresee more bad news for the Israeli economy, unless they reach a peace agreement with their neighbors.

Q:  What is the likelihood of a conflict with Iran?

From an economic perspective, a war with Iran could be devastating to the region and the world, causing a severe global recession. If Israel strikes Iran in 2011 or if the war lobby wins the US elections in 2012, the event would be a key catalyst for a global energy crisis followed by US economic depression and currency crisis. If you thought the economic crisis caused by the financial sector was hard on the world, you have not seen anything compared to the inflation pains and socioeconomic challenges caused by rising energy prices. The best way to get rid of the threat of a nuclear Iran is for Israel to make peace with its neighbors.

US Economic Outlook 2011 - 2012 - US Economic Crisis - Financial Crisis - Economic Recovery - Economic Plan

About Med Jones

Med Jones is the president of International Institute of Management. He is recognized as one of the few experts who predicted the US financial and economic crises of 2008. In a policy white paper, he challenged the US President's State of the Union Address, Federal Reserve Chairman and mainstream economists. His predictions were the most comprehensive and accurate among the experts who warned about the crisis. The original warnings can be found at:

  • The instituteís 2006 policy white paper: U.S. Economic Risks & Strategies 2007-2017 warned about key risks for the decade, including the housing bubble, consumer and national debts, trade and investment deficits, and currency risks.
  • Reuters: When the Fed, major investment banks and leading economists denied the housing bubble risks and asserted that the impact of the subprime mortgage defaults is limited to a few companies in the financial sector, the institute warned about the widespread impact of the subprime mortgage bankruptcies and the loss of confidence in US economy (March 2007)

Jones is a non-partisan technocrat. He can be reached at medjones.com

 

 

 

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