Why an Unstable Middle East Could Mean an Environmental and Economic Catastrophe
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The violence is now spreading across the Middle East; there have been expanding attacks on US Embassies in Yemen, the Sudan, Egypt and other parts of North Africa. And as the protests have spread, it seems increasingly less likely that a mere YouTube video is the driving factor. As the Guardian reports:
“Very few of the people setting fire to the German embassy in Khartoum, attacking the American school in Tunis or torching a KFC in Beirut will have even seen the Innocence of Muslims. If the prophet had really been insulted, you would see 100 million in the streets. Instead we only see a few thousand.”
Then there is Egypt, which is potentially even more grave, not only home to the Suez Canal, but also the largest and most influential branch of the Muslim Brotherhood. As Egypt’s Supreme Council of the Armed Forces (SCAF) took the reins of power in February 2011, many observers believed that a tacit understanding existed between the powerful Egyptian military and the Brotherhood, the most organized political and social group in Egypt. For the next 18 months, this complicated and largely behind-the-scenes contentious relationship between these two powerful entities had its ups and downs.
When SCAF sided with millions of Egyptians in ousting Hosni Mubarak in early February 2011, it was not to advance the objectives of the revolution but rather to sacrifice the president in order to save his regime. But newly elected President Morsi, the Muslim Brotherhood’s reluctant stand-in candidate, appears to have outflanked the military and other security forces, and instead consolidated the dominance of the dominant Brotherhood, which has deep roots in the country.
There are serious concerns here from a Western perspective. The Arab Spring was initially dominated by seemingly modern, moderate, pro-Western people. But they are a minority in a country which is now more likely to be overwhelmed by the Brotherhood in the context of weak democracies. The facts that 1) it has been uncovered that the maker of the film was an Egyptian Christian Coptic who has a long record of being jailed in the U.S. for illegal money-making schemes; and 2) there were no Israelis or wealthy Jews behind the film are not going to be heard by the crowds on the streets. The Brotherhood may well use this event as a pretext so it can move in a more viscerally hostile anti-Western direction.
So why does this matter for you? Well for one, you’re certainly likely to be paying more at the pump as the violence spreads and risk premiums get built back into the oil price (which is now up some 25% from its lows of the spring). And if the Arab Spring turns less benign, then it is going to become more anti-American and anti-West than anyone could have possibly envisaged a few months ago.
The day of the dictators appears to be over, which means it can’t be shut down, much like the Ayatollah Khomeini’s influence in Iran in the late 1970s and early 1980s. If this is indeed the future, then down the road this could well pose a threat to Arab oil supplies to the West. That would be a very big negative to the economy acting as a quasi tax rise, which could easily offset any benign supply/demand forces stemming from increased domestic production. The latest Department of Energy data on U.S. liquids production has shown an ever rising trend in year over year liquids production.
You can imagine how the champions of King Coal will exploit this opportunity, as well as the companies minting it coin and fist as they pollute the states’ water aquifers via fracking. Because when it comes to crises in the Middle East, ready access to cheap energy always trumps environmental concerns. The unfortunate upshot of this is that oil isn’t going anywhere. American oil consumption — as a percentage of its total primary energy consumption — now stands at about 37 percent. That’s the exact same percentage as in 1949. Today’s Middle Eastern tensions will almost certainly guarantee that this percentage won't be going down anytime soon.