Middle East protests bigger than oil

This is a belated attempt by me to start to grapple with recent events in the Middle East. Although it is written for a financial audience it should be of more general interest. It appeared as a news analysis in the latest edition of Fund Strategy.

Although finance professionals may not want to discuss it too loudly they are exceedingly anxious about what will happen next in the Middle East.

Will the protests escalate to a crescendo of – probably Islamic – revolution? Or will the situation stabilise with the removal of geriatric autocrats such as Egypt’s Hosni Mubarak and Tunisia’s Zine el-Abidine Ben Ali?

Perhaps not surprisingly much of the discussion focuses on the security of oil supplies. The Middle East (excluding North Africa) accounts for 56.6% of the world’s proven oil reserves as well as 40.6% of its natural gas reserves. If oil prices surge the fear is that the global recovery could falter as inflation surges.

From this perspective the clear preference is for order over freedom. Most City types would probably be content with the overthrow of a few ageing tyrants if it led to longer-term stability. But the threat of a more thoroughgoing process of social transformation is viewed with alarm.

Unfortunately it is difficult to predict what will happen next. Apart from the usual difficulties of lack of sufficient information and inherent uncertainty there is a more fundamental problem. Most commentators have only a hazy idea of the significance of what has happened so far. Without a proper understanding of the historical context of recent events it is impossible to assess their true importance.

It is easy enough to report on protestors shouting or indeed tweeting slogans but it is much more difficult to assess the meaning of such movements. Although many commentators have argued that the protests could morph into Islamic fundamentalism there is little sign of that. The main focus of the demonstrations seems to be against authoritarian leaders and for greater democracy. No doubt many practising Muslims are involved but their grievances do not seem to have expressed themselves as demands for an Islamic state. There have also been reports of strikes in which workers have demanded higher wages.

A good starting point is to examine the latest developments against the recent history of the Middle East and particularly the changing relationship with the West. No schema is perfect, reality is too messy, but in broad terms it can be divided into two main phases.

First, the immediate post-colonial period which unravelled in the 1970s. This was characterised by pan-Arabism in the Arab world alongside special western support for non-Arab regimes such as Iran and Israel. Second, the period of Arab strongmen and direct western military intervention. Recent developments can be seen at least as a partial unravelling of the second set of arrangements.

The first phase started with the independence of local regimes from their former colonial rulers. The process ranged from peaceful handovers to local rulers to bloody anti-colonial struggles.

In broad terms the region was characterised by several key features during the immediate post-colonial period. Within the Arab countries support for pan-Arabism was strong. There was widespread agreement that the local states should move towards the creation of a single unified Arab nation. The Palestinian struggle also enjoyed widespread support as a ­symbol of the aspiration to resist foreign incursion.

At the same time the West generally avoided intervening directly in the internal affairs of the Arab states. In the most notable exception, the combined Anglo-French and Israeli attack on Egypt in 1956, they were quickly forced to withdraw by American pressure.

To the extent that the West intervened indirectly it was most obviously through support for key allies. Two of these were non-Arab states, Iran and Israel, while the other was oil-rich Saudi Arabia.

This whole set-up started to unwind in a couple of fateful years in the late 1970s. It started when Anwar Sadat, the Egyptian leader who preceded Mubarak, visited Jerusalem in 1977. It is difficult to overestimate the impact this had at the time. The leader of the largest Arab country, a nation formerly seen as a the forefront of pan-Arabism, signalled its willingness to make peace with the Zionist enemy. Within two years Israel and Egypt had signed a peace treaty.

Even more dramatic was the overthrow of the staunchly pro-western shah of Iran by a mass movement in 1979. Both local regimes and external forces moved to try to contain its impact.

Within a short time the Saudis crushed a rebellion by Islamic militants who took over the Grand Mosque in Mecca, the Soviets invaded Afghanistan and there was a military coup in Turkey. Iraq under Saddam Hussein, encouraged by the West, launched an attack on Iran which led to a bloody eight-year war between the two neighbours.

From here the outline of a new phase in the relationship between the West and the Middle East began to emerge. It was characterised first by the re-emergence of direct western military intervention in the region. Most notably this included the first Gulf war (1990-91), the second Gulf war (2003) and subsequent occupation and the intervention in Afghanistan (2001+).

The recent period was also characterised by a “flatter” relationship with local regimes. Within the Arab world the West tended to cultivate regimes led by authoritarian strongmen.

With Israel making peace with Egypt and later with the Palestine Liberation Organisation, the Palestinian struggle also became a less important factor in the Arab world. Iran became a focus for western hostility rather than a reliable ally. From here it can be seen that at least one, and arguably both, of the key features of the West’s relationship with the region have broken down with recent events.

It looks increasingly likely that the strategy of backing local strongmen is starting to fail as a result of the democratic impulse. It also appears that the West does not have much of a stomach for direct intervention in the region following recent painful experiences.

Making historical judgements without the benefit of hindsight is always a fraught task. But it is safe to say that the broader significance of recent events in the Middle East goes well beyond a spike in oil prices.