Long hot summer?

The convulsions that have gripped the Middle East and North Africa in recent months are another salutary reminder of the meaning of the phrase ‘political risk’. The removal of president Ben Ali in Tunisia appears to have been fortunately - relatively - bloodless, and in Egypt after an initial heavy-handed crackdown by state police the army appears to have stepped into ensure an orderly transition of power from president Hosni Mubarak. Libya, however, with a ruler far less amenable to outside or indeed domestic pressure, has descended into a de facto civil war, while at time of writing, Bahrain has declared a three-month state of emergency and invited Saudi and other troops from its Gulf Cooperation Council partners onto the streets. Yemen is on the brink, and in Morocco, Oman, Jordan, Kuwait, Iran and Saudi Arabia itself, there have been demonstrations and riots, and things remain tense. The Arabic-speaking world appears to be in for a long, hot summer of discontent as high food prices, unemployment, inequalities of wealth, long-standing political grievances and modern communications technology all combine to create a dangerous cocktail.

As fighting rages around the oil terminals at Brega and Ras Lanuf in Libya, and oil prices climb 25% to $120/barrel, minds are bound to be concentrated on the prospects for production disruptions across the region. Some 60% of the world’s oil and 45% of natural gas resources lie within the region, and the prospect of a revolution spreading to Saudi Arabia must keep many people awake at night. Libya is only the world’s 12th largest oil producer, yet markets are clearly nervous. Even if another major oil producer is not sucked into the swirl of political unrest, the ability of the region to generate an oil shock for the global economy in 2011 comparable with that of 2008 is clearly already present, in a world already in an uncertain emergence from recession.

Fertilizer and sulphur markets have been relatively free from disruption so far, but five of the top ten sulphur exporters and three of the largest consumers lie within the region, the former in the oil and gas-rich Gulf region, and the latter based around the major concentrations of phosphate reserves, in the Maghreb and Jordan. Supplies of phosphate rock and downstream fertilizers from GCT, Tunisia were disrupted for some time after the change in government, as labour disputes at the Sfax, Gabes and La Skhira production sites continued. It was reported that production at the GCT 330,000 t/a DAP plant was continuing at just one-third of normal capacity. There are signs that output is resuming but several weeks’ production has been lost.

In ‘Anna Karenina’, Tolstoy said that; “all happy families are alike, but every unhappy family is unhappy in its own way”. This seems to be equally true for unhappy nations; the very different experiences of neighbouring Tunisia and Libya are testament enough to that. The events of one country are not necessarily a guide to what will happen in another, as circumstances can be very different even in the closest neighbours. Some countries in the region, for example, have the cushion of oil reserves – in Saudi Arabia King Abdullah has already spent $36 billion of his windfall gains from high oil prices on buying off dissent. But while the bloodshed of the Libyan civil war appears to have given a temporary pause to some of the momentum for change elsewhere, that momentum nevertheless remains. To concentrate solely on the balance sheet is to eclipse the wider significance of a protest movement which many have compared to those that swept Europe and North America in 1968, or central and eastern Europe in 1989. Regional dictators like Mubarak have often held up the spectre of radical Islamism to justify their position to a West that has often been only too happy to indulge them, but there is clearly a secular rather than sectarian mood afoot. Where the pieces of the puzzle will fall remains an open question, but may well end up reshaping an entire region.