Middle East uncertainty continues

By Maureen Aylward

With continuing uncertainty in the Middle East – in places like Libya, Syria, and Yemen – we asked our Zintro experts to comment on how this destabilization is affecting global markets for oil, energy, and other goods and services.
Al Rio, a risk analyst and consultant, says that there are two kinds of effects of instability in energy markets: the easily measurable ones and the subjective, or irrational, ones. “The first are easy to see. If any of these countries of the tables below stop (partly or completely) their oil exports, the effects are, depending of disruption time, going to be more or less close to last column’s values. One can run models to try to estimate how big the final effect in prices will be, and further run the models to try to ascertain the impact on growth, inflation, employment, and so on, making use of the rational expectations principle.”

Source: Michael Ratner & Neelesh Nerurkar: “Middle East and North Africa Unrest: Implications for Oil and Natural Gas Markets.” Congressional Research Service, March 10, 2011.

Source: Michael Ratner & Neelesh Nerurkar: “Middle East and North Africa Unrest: Implications for Oil and Natural Gas Markets.” Congressional Research Service, March 10, 2011.

Recent comments by Ms. Jean Boivin, Deputy Governor of the Bank of Canada, at the Canadian Association for Business Economics explain that rational expectations (in its stronger form) means that we assume that people are very sophisticated: “[Individuals] fully understand how economies and markets work, take into account all the information available, fully appreciate the future consequences of their actions today, and make decisions that are fully consistent with this understanding.” However, Rio points out that the dominant undercurrent of people’s actions in economic tasks are that analysts pour over the tables above and other data to try to objectivize behaviors. “There are perturbations to the mathematical equations that introduce a distance between the ideal (rational expectations) and the real thing. Unfortunately, there is no easy way to introduce into the models the non-objective part,” says Rio. “Effects will gravitate around the values in the tables above, but there is a volatility in the final values that depends of how fearful investors are, and fear is non-computable.”

Rio says that many issues that are not covered in the media currently are due to the lack of familiarity with the Middle East/North Africa (MENA) countries. “There is not enough knowledge among investors, policymakers, and citizens of those societies: their culture, their history, who are powerful and why,” he says. “Most commentary on the risks of a jihadist takeover, or the lack of attention to countries like Mauritania, ignores basic data about those societies and the interactions in the area. Basic data, like efforts to influence North Africa by countries outside the area, are not being discussed.

Source: The Moor Next Door, Oct 17, 2010,  http://themoornextdoor.wordpress.com/2010/10/26/experiments-in-map-making

MD Rosenberg, PhD, a professor and researcher, says that Libya, Syria, and Yemen offer crucial geopolitical differences despite the common theme of authoritarian governments being challenged by a popular movement seeking democratic reform. “The three countries have quite different demographics and geographical realities from one another in addition to the potential resources each brings to the global market,” notes Rosenberg. “Concerns over stability cannot be ignored by the business community and one can assume that both international market activities as well as domestic activities are bound to be disrupted.”

Rosenberg says that the media has failed to focus on the potential changes in authority structures that accompany political revolutionary movements. “Democratic systems do not organically appear overnight. Furthermore, Islamic societies frequently have sophisticated philanthropic structures, so many of the structural aspects of civil society that one might associate with democracy might not be appropriate in this context. Finally, from the Coptic Church in Egypt to the Alawite communities of Syria, minority groups that are either vulnerable (as with the former) or powerful (as the latter) are bound to be impacted as these situations develop.”

Moshe Terdiman, PhD, and expert in Middle Eastern studies, thinks that the continuing uncertainty in Libya will have a slight impact on the global oil and energy markets, especially since Libya only accounts for about two percent of global oil markets. “There are new oil fields about to be opened in Iraq, which is a bigger oil producer than Libya. In contrast, instability in Yemen may well jeopardize global oil and energy markets and send prices sky high because of its huge oil production and strategic location in the entrance to the Red Sea.”

Our experts would love to hear from you!  Post your question for Middle East experts here.  Are you a subject matter expert?  Sign up as a Zintro expert to start generating free leads for your business.