MARCH 2011                                                                                                                                 Download PDF Version

The Wrong Side of the Wall


With a ‘Day of Rage’ called for in Saudi Arabia on Friday it is clear that western powers cannot view themselves as positive contributors to the situation in North Africa and the Middle East. Within two months the generation-old status quo has been swept aside with, as yet, unclear consequences.

Mohamed Bouazizi lived in the small Tunisian town of Sidi Bouzid. Although he had a full university degree the only way to make money was to sell fruit and vegetables from an unlicensed street-side kiosk. The police confiscated his produce and stopped him trading; in anger and desperation he doused himself in petrol and set himself alight. The match he lit started the fires that have swept across North Africa and the Middle East and which have, to date, unseated two long-standing rulers with others sitting uneasily.

Western politicians are trying to liken this popular uprising to the fall of the Berlin Wall.  The not-so-subtle subtext is to suggest that, as with this former event, we are again the ‘good guys’. The unpleasant truth for the West is that there is no wall involved, instead there is a massive wealth gap; the West is firmly on the wrong side of this gap.  

Western powers have been only too willing to support rulers in the region in order to maintain their oil supplies and the stability of their business contracts to these countries.

Anti-American by default
Demographics have finally caught up; North African and Middle Eastern countries have young and educated populations who are now unwilling to accept the status quo of corrupt and dictatorial regimes. That a number of these regimes have been supported by the USA means that by default their overthrow can also be viewed as a victory over America. This is another unintended consequence of the current turmoil — the revolutions are not Islamic in nature, however, the islamist parties are certainly on the poor side of the wealth gap and will be able to exploit  the revolutionary mood.   

Rising Food Prices
Many people are pointing to the recent rise in the price of corn and other staples as the straw that broke the camel’s back. Since July 2010 the price of corn has doubled, and in the developing world populations spend up to 75% of their income on food; in the West this figure would only be 10-15%. Food inflation has historically always led to unrest, however, in this case there had been a much more general and growing level of dissatisfaction. 

Repercussions
There could be a great number of possible repercussions to the current unrest; the nature of which will be more affected by events unfolding in Saudi Arabia and Bahrain rather than Tripoli and Benghazi. From the good to the bad — these are potential results that we could see:

  1. The emergence of a new ‘BRIC’ in North Africa and the Middle East. The democratisation of a number of new markets with large populations close to Europe could provide the investment community with a new and exciting area for growth investment.

  2. The US has lost massive influence in the area. Might we see the oil price start to be denominated in a basket of currencies rather than just US$s? The Middle Eastern countries would be recognising the growing importance of China in the region and the US$ would weaken substantially.

  3. Might the gold price reset at a much higher level? There is both geopolitical risk and the threat of much higher inflation due to a rise in energy prices. Furthermore the developed economies are ill-prepared to cope with any disruption to their economies through an oil spike — therefore further stimulus would also burnish gold’s reputation as a store of value.

It is not clear how the current situation in North Africa and the Middle East will play out in the longer term. However, the most critical date we must now look towards is this coming Friday, March 11th, when a ‘Day of Rage’ has been called for across Saudi. If popular unrest starts there then by Monday we will be in a very different world.

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