Friday, January 28, 2011

Oil, Food, and the Wealth of MENA Countries

This morning, I've been catching up on some reading about the protests in Egypt and Algeria, following on the Jasmine Revolution that is in process in Tunisia.  Clearly, the reason for interest is wondering to what extent is there any risk of these events spreading into the big oil exporters, which could cause extremely large disruptions in the global economy.  This is probably unlikely, but not so inconceivable that serious observers aren't starting to at least think about it.  For example, Marc Lynch writes:
The end of the Tunisian story hasn't yet been written. We don't yet know whether the so-called Jasmine Revolution will produce fundamental change or a return to a cosmetically-modified status quo ante, democracy or a newly configured authoritarianism. But most of the policy community has long since moved on to ask whether the Tunisian protests will spread to other Arab countries -- Egypt, of course, but also Jordan, Yemen, Algeria, Libya, and almost every place else. Most experts on each individual country can offer powerful, well-reasoned explanations as to why their country won't be next. I'm skeptical too.

But I found it unsatisfying to settle for such skepticism as I watched the massive demonstrations unfold in Egypt on my Twitter feed while moderating a panel discussion on Tunisia yesterday (I plead guilty). As I've been arguing for the last month, something does seem to be happening at a regional level, exposing the crumbling foundations of Arab authoritarianism and empowering young populations who suddenly believe that change is possible. There are strong reasons to expect most of these regimes to survive, which we shouldn't ignore in a moment of enthusiasm. But we also shouldn't ignore this unmistakable new energy, the revelation of the crumbling foundations of Arab authoritarian regimes, or the continuing surprises which should keep all analysts humble about what might follow.
I recommend reading the whole piece.

I thought it would be helpful (at least to me) to put up some very basic statistics about all the Middle East and North African (MENA) countries.  Firstly, from the IMF, we have the GDP/capita for twenty MENA countries (2009 figures, expressed in dollars at PPP).

I have circled Tunisia, which is already in the midst of a clearly irreversible political change of some kind, and Egypt and Algeria which are much in the news for protests.  Clearly, these three are amongst the poorer countries.  Egypt has a long history of protests, but experienced particularly large protests yesterday and today, apparently inspired by Tunisia:
After days of protests in the Arab world that have toppled one president and shaken many others, thousands of demonstrators calling for the ouster of President Hosni Mubarak poured from mosques across the Egyptian capital after noon prayers on Friday, clashing with police who fired tear gas, rubber bullets and water cannons.

Witnesses said a crowd of at least 10,000 people was moving east from Cairo’s Mohandeseen neighborhood, trying to reach the central Tahrir Square that has been an epicenter of protest. But police lobbed tear-gas to try, blocking their access to a key bridge across the River Nile from the island of Zamalek. Some demonstrators stamped on photographs of the president and others chanted “Down, down with Mubarak.”

Near Al Azhar mosque in old Cairo, thousands of people flooded onto the streets after noon prayers chanting “The people want to bring down the regime.” Police fired tear-gas and protesters hurled rocks as they sought to break though police lines. From balconies above the street, residents threw water and lemon to protesters whose eyes were streaming with tear gas.

Similar demonstrations were also reported in the cities of Suez, Alexandria and several others, including Al Arish in northern Sinai.
Meanwhile, the food riots in Algeria have died down for now:
Algeria's President Abdelaziz Bouteflika is considering high-level cabinet changed in hope of showing a reformist bent after the country was shaken by riots, people familiar with the matter said.

There is no clear timing for the changes, but one scenario under consideration would include the promotion of Energy Minister Youcef Yousfi to be the new prime minister, replacing current Prime Minister Ahmed Ouyahia, they said. Such a move could be part of a broader reshuffle aimed at replacing officials with ties to political parties with technical experts whose reputations remain intact after the protests.

Mr. Yousfi, who became energy minister last year after a corruption probe shook Algeria's oil industry, has had a long career in the hydrocarbons sector as well as in diplomacy.

Mr. Ouyahia is the secretary general of the National Rally for Democracy, a member of the ruling coalition.

A presidential spokeswoman said she had no information about any potential cabinet reshuffle. Spokesmen for the energy minister and the prime minister's office couldn't be reached.

Riots over food prices this month, a similar unrest that led to regime change in neighboring Tunisia, and to protests in Egypt and Yemen. The occasionally violent demonstrations have highlighted concerns about political and economic stagnation in the oil-rich North African nation. Riots have died down since the government took measures to keep food prices under control, but there have been sporadic peaceful protests organized by political parties seeking change.
But essentially the population is being bought off with cheap food, and, in a very tight global food market, this is having an effect on prices:

The ultimate nightmare would be a sort of vicious feedback loop in which high food prices cause turmoil in oil exporting nations thus reducing oil production, causing an oil price spike, which in turn would feed back into even higher food prices as farmers had to raise prices to cover their input costs and biofuel production was rendered more profitable.

Thus it's good to be clear which MENA countries actually produce the oil.  Here are the 2009 data from BP:

Tunisia is a minnow in the global oil market, Egypt slightly more important.  Algeria, however, matters a lot as its oil production is probably close to total demonstrated OPEC spare capacity.  Thus serious social instability in Algeria would have major effects on global oil prices.  If instability spread to bigger oil producers than that (eg Kuwait or UAE), the effects could be very dramatic.

Presumably, the regimes in those countries are in a much better position to buy their populations off, being much wealthier.  I must admit to feeling slightly dirty writing that sentence.  Staring at this list of countries makes clear what we already know: about a third of global oil production comes from this array of nasty autocratic regimes, and thus the global economy is utterly dependent on their continued stability.

Next, here are unemployment rates (for those countries the IMF has stats for - most don't provide them).

The stats are high everywhere except Kuwait.  Though, if the official figures are to be believed, comparable to the US currently.  The countries currently experiencing unrest do not have obviously massively higher unemployment than other countries in the region, suggesting the potential for further unrest.  For example, Saudi unemployment is apparently higher than Egypt's.

Finally, here are the IMF's estimates of inflation rates.  In this case, I have taken 2008 figures, both because they are the last year for which actuals were available for all countries but Tunisia, but also because conditions in oil and food markets in 2008 seem like the best guide for events in the next few years.

As you can see, most of the MENA countries had high to very high inflation rates, with Egypt particularly standing out.  Neither Tunisia or Algeria were amongst the worst cases.


Stuart Staniford said...

If you haven't seen the latest, the Egyptian military has been called onto the streets, and the ruling party's building is in flames.

Stuart Staniford said...

Also, Egypt has cut itself off from the Internet.

Stuart Staniford said...

Protests in Jordan, too. Al Jazeera English seems to have the best coverage.

Stuart Staniford said...

Secretary Clinton says:

Secretary of State Hillary Rodham Clinton called on Friday for the Egyptian government to “restrain the security forces” that are confronting street protesters, and said that “reform is absolutely critical to the well-being of Egypt.” Her remarks were the Obama administration’s firmest statement so far on the mushrooming street protests in Egypt.

Reading from a written statement outside her office, moments before the sound of gunfire broke out in the streets of Cairo, Mrs. Clinton said that the Egyptian authorities should not “rush to impose very strict measures that would be violent.” She called on President Hosni Mubarak to open “a dialogue between the government and people of Egypt,” and said that “the deep grievances within Egyptian society” that will not be erased by a crackdown.

With events in Egypt unfolding at a furious pace, Mrs. Clinton’s statement toughened the administration’s line, after two days in which senior officials have struggled to balance their longstanding alliance with Mr. Mubarak with a desire to support the democratic aspirations of his restive people.

Mrs. Clinton said that the future of Egypt was up to the Egyptian people, which seemed to open the door to political change. “There is a constant concern for the need of greater openness, greater participation, particularly on the part of young people,” she said, noting that she had raised this issue two weeks ago in Qatar, where she bluntly warned Arab leaders to reform their societies.

Sounds to me like we are on the side of the protesters, not that of President Mubarak. That is undoubtedly the side of right...

Still, I wonder what she'd be saying if this was Saudi Arabia instead of Egypt? Not that much difference in the way the regimes treat their people. If this wave of revolution goes much beyond Egypt, the consequences will be absolutely incalculable.

In particular, if this administration presides over a revolution in a major oil producing country, it can probably kiss it's chances of getting re-elected goodbye...

Stuart Staniford said...

Mubarak has thrown his cabinet under the bus. Doubt that will appease the protesters. Tomorrow should be interesting...

Stuart Staniford said...

Hmmm. According to this AP story, the price of Egyptian government bond CDS have jumped 90%. Meanwhile, Saudi CDS have jumped 41%, Morroco 40%, and Israel 30%. So the markets think there's a fair chance of more contagion.

Stuart Staniford said...

Catching up this morning on the Guardian's live blog, it looks like the Egyptian army has so far been unwilling to fire on the protestors. Unless the army shows willingness to do so soon, Mubarak will have to leave the country before protesters find him.

Redford said...

Makes sense that the countries in revolt rank low on the GDP per capita scale, in that one of the catalysts for the turmoil has been the high prices of food staples like wheat,rice, and the very important commodity sugar, now at a 30 year price high.

vera said...

Folks, the Tunisians are fairly pissed off about the hypey name Jasmine Revolution. It's not their moniker. Here is a quote from a commenter I picked up this morning:

"It is not the Jasmine revolution. Please stop calling it as such.

the difference between these revolutions and other 'Colour' revolutions is that the colour revolution were incited and supported by the West.

the Revolutions we are seeing now were not supported by the west. In fact, they were met with caution and silence. we've had enough of the west claiming credit for all that's good that happens in the Middle East, and ignoring all responsibility of the bad.

and - I'm a huge fan of wikileaks, but no, the revolution didn't start because of Wikileaks."