Lifelong Learning – Temple Beth El Mark S. LeClair Fairfield University

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Economic Impact of Instability in the Middle East Local impacts – Some estimates indicate Arab Spring cost nearly $100 billion Global Economic Impacts World petroleum markets in particular Geo-Political Effects Moving Forward

Talk will Mostly Focus on Post-2010 Instability “Arab Spring” and its aftermath With some attention to the 1970s: The Yom Kippur War and the Iranian revolution

Prior to 1973, Little Attention Paid to Middle East In 1960, a fledgling organization named OPEC was formed At the time, only five countries were members Goal was to stabilize and increase petroleum prices Little impact initially – price of oil was still below $3/barrel in the early 1970s 1973 – Yom Kippur War and the OPEC embargo on the U.S. – oil quadruples in price to $12.60 per barrel

1979 – Taking of U.S. Hostages in Iran Price of Oil Rises to $44/barrel In real terms, comparable to the prices we saw in 2008 before the economic collapse Impact of two oil crises Decade of poor growth in U.S., coupled with high inflation By 1979, U.S. economy experiencing stagflation Recycling of “petro-dollars” led to debt crisis in Latin America Mideast now had our attention

Impact of Accumulated Petrodollars Massive holdings recycled into Latin America Used to build new infrastructure, but not new businesses that would have provided new export earnings Result – developing nation debt crisis Decade of lost growth, high inflation and a damaged U.S. banking system

Power of OPEC Exhausted in 1986 Short re-assertion of power in 1998, but some large non- OPEC producers (Russia, UK, Canada) blunt the impact of the organization Mideast source of occasional instability Muammar Gaddafi’s support of instability and pursuit of nuclear weapons Iran’s support of terrorist groups Unending conflicts around West Bank and Gaza Strip

Dominance of Oil Market Made the Region’s Fortunes Important Globally At peak, U.S. importing about 70% of its oil Can say we sought other sources, but its just one big pool in the end If we bought from Mexico instead of Iran, Iranian oil becomes part of the global stockpile of oil

Arab Spring Began with Tunisian Revolution in 2010 Spread to Libya, Egypt, Yemen, Syria, Bahrain Street protests in many other Mideast nations Governments toppled in Libya, Egypt, Yemen In strange coincidence, Venezuela also goes into political unrest Production drops dramatically

Impact on Global Markets……… Production in key nations Libya – “Normal” production approximately 1.3-1.5 million barrels per day Fell dramatically, if briefly, during the Arab Spring Production has now recovered, despite continued turmoil Yemen – never a huge producer, but does have reserves of 4 billion bbls of oil Production has collapsed

Morocco, Tunisia and Other “Non-Oil” Nations Tunisia: Exports include textiles, clothing, agricultural products Tourism one of its major “exports” Arab Spring (and deteriorating security) led to decline in tourism May take years to recover

Morocco Exports: Phosphates, textiles and agricultural products

Tourism Revenue

Current Account and Fiscal Balances - % of Gross Domestic Product 2010 2011 2012 2013 2010 2011 2012 2013 Egypt -2.0 -2.6 -3.1 -2.6 -8.3 -9.9 -10.7 -14.0 Jordan -5.3 -12.0 -18.1 -10.0 -5.6 -5.7 -8.8 -9.0 Libya 19.5 9.1 29.2 -3.0 15.9 -9.0 19.3 -6.0 Morocco -4.1 -8.1 -10.0 -7.2 -4.4 -6.7 -7.6 -6.0 Tunisia -4.8 -7.3 -8.1 -8.0 -0.4 -3.0 -4.4 -7.0 Yemen -3.7 -4.1 -0.9 -3.0 -4.0 -4.3 -6.3 -6.0

Result – Middle East/North African Growth has Fallen Behind Rest of the World

Global Impacts How does the decline in growth affect the rest of the world Drop in imports affects those industries that sell to the Middle East Big imports include Machinery, Vehicles, Aircraft and Electrical Machinery Close to $40 billion in these categories Instability shrinks these markets

Is it Instability, or is it Oil?

Difficult to Separate 2 Effects Mideast is a very different place with $60-65 per barrel oil rather than $120 per barrel oil Revenue that caused a lot of mischief (particularly from Iran) is smaller Oil cannot return to higher prices because of fracking

Inflation-Adjusted Price of Oil (July 2017 = Base) Year Price/Bbl. 1973 $ 26 1974 $ 46 1980 $111 1986 $ 32 2008 $104 2017 $ 43

Recent Development Moves by Saudi Arabia to adopt more moderate version of Islam Opening up to Israel Meeting with Jewish leaders Women allowed to Drive! May be recognition that going it alone in a world of cheap oil is not going well Moderation may dampen instability

Conclusion Arab Spring generally bad economically for region Impacts relatively brief Did not resolve the political problems of the region (made things worse in Egypt, Libya and Syria) Global impacts muted World is a $100 trillion economy $100 billion drop is 1/10 of 1% of output Long-term impact of cheap oil will impact region dramatically Instability in the 1970s much more dramatic

Thank you and Questions