Redrawing of the whole political and economic map in North Africa and Middle East

The current events, not only in Tunisia and Egypt but also less widely discussed ones in Yemen, Jordan, Algeria and Syria, may indicate the redrawing of the whole political and economic map in North Africa and Middle East. The issues are the speed and nature of change, the eventual shape of that new map, and the wider ramifications for the price of oil and the world economy. Companies need to examine their exposure to the uncertainties of a changing Middle East and North Africa.

Could we see prolonged uncertainty at best, widespread violence at worst? Could we see oil at $300 a barrel, and rising? Could we see the collapse of Sovereign fund investments? Or, could we see an orderly transition to more democratic states whose predominantly young populations have not only found a voice and the courage to use it, but have seen the potential for change. Could these changes in the Middle East and North Africa herald the kind of economic boost that followed the fall of the Berlin Wall in 1989? Or could they herald a huge economic downturn?

What is changing?
The protests and subsequent departure of President Zine El Abidine Bin Ali from Tunisia after 23 years in power were momentous. But they were only the beginning. In Egypt, protests and marches that would have been unheard of even 4 weeks ago, have already won concessions from President Mubarak not to stand in the elections in September, and the appointment of a new government. The crowds are not satisfied.

In Jordan, smaller protests and demonstrations have already prompted change: King Abdullah has sacked the government and asked Marouf Al Bakhit to form another one and begin political reform.

In Yemen, thousands are demonstrating and calling for the resignation of President Ali Abdullah Saleh, who has pledged not to stand again in 2013.

In Algeria, thousands have taken to the streets to protest about the regime and call for an end to the 19 year long state of emergency. Another demonstration is being organised for February 19th.

In Syria, a Facebook campaign to organise protests for the weekend of 5th /6th February is underway.

In Libya, 3 citizens are on hunger strike and a rally is being organised for February 17th.

Why is this important?
The changes under way will redraw the political and possibly economic map in the region. The rapid spread of protest and the responses so far in different countries are indicative of the concern among the political elites. The level of uncertainty will have widespread economic and political ramifications.

The important questions, which will affect how events play out in the future and how widespread and what kind of impacts emerge, include: Will those changes will be peaceful? Will they result in genuine democratic change and satisfy the demands of the protesters? How many countries will be affected, and undergo significant political change – could they include Iran? How long will the uncertainty / speed of transition be?

The Saudi stock exchange has already fallen 6% in response to the uncertainty and upheaval in Egypt. The longer that uncertainty continues and the wider it goes, the greater the likelihood of further tumbles. How soon before sovereign investment funds feel the need to change their investment strategies? Given the huge extent of their investments worldwide, what implications might that have? How exposed are specific companies, sectors, pension funds, even governments? Investors and finance departments need to examine the potential impacts. So far the army in Egypt has remained on the sidelines, indicating its unwillingness to fire on the people. But small pro Mubarak demonstrations have occurred; fights between different factions could erupt. How would the military respond then? Elsewhere, the responses have, so far, also been political not military. But many of these regimes have a history of ruthless suppression, and are not likely to give up power willingly. Given the tensions across the region, how widespread could violence become? Would it remain within the borders of one nation or would it spread to others- and not only play out within, but between neighbouring states? The potential opportunities in emerging markets in the Middle East could disappear overnight. Companies already investing there could be vulnerable to sudden losses and financial exposure.

Long term or widespread violence in the region would limit oil production and the price would skyrocket. The highest price ever was $145 per barrel, in 2008; it has already passed the $100/ barrel mark again. $200 or even $300 per barrel might be a reality. Companies need to consider what that would do to their businesses and what they could do to limit its impact.

Hopefully, the transitions will be peaceful and democratic. But that process of change could take months probably years, creating long term political uncertainty in a critical region of the world. Even if democracy ‘breaks out’, there is no guarantee of the nature of the resulting governments, their political affiliations nor attitudes to the West. The new map could include some very extreme or populist governments. Whatever the complexion of the new governments, new relationships will take time to build. Uncertainty will continue.

The upheavals are being compared to the fall of the Berlin Wall in 1989 and the subsequent political and economic changes in Eastern Europe. But even those changes have not been straightforward and have cost many lives. More than 20 years on, they are still not fully played out, but have on the whole provided a huge boost to the world’s economy. The same may be true of the changes in the Middle East and North Africa. The predominantly young populations want jobs and money to spend; they are tech savvy and have found a voice and the courage to use it. Widespread shared growth and prosperity could follow.

If not, and violence erupts, then oil and gas supplies may be under threat and the impacts on the global economy could make the recent recession look like a walk in the park. Scenarios of the different options and outcomes will be an important tool in assessing such high levels of uncertainty.

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