Wednesday, February 23, 2011

The Middle East: Liberalism? No! Islamic Renaissance? Not Really! Demise of Postcolonialism? Yes!


Sometimes it is good to be busy with other things. To be involved in business dealings that have nothing - or not much - to do with the turmoil in the Middle East. It is clear that we are in the middle of a period that will be labeled as a 'historical' or maybe even 'decisive' one years later, when historians and political scientists will write their analytical books about this period.

The Middle East; A Change is Gonna Come, One Way or Another. No Matter What we Do.

But at the moment we are in the middle of a media circus. TV stations, Radio stations, Social Media...they all try to bring the latest news. With the definition of news resembling that of gossip more and more. No matter if you are talking about CNN, Al Jazeera, or any of the other official news sources: in the end they all have a business model linked to the amount of followers and even more important: the amount of advertisers.

Aren't the Social Media different? Yes, to a certain extent. But unfortunately they have become a huge collection of good, less good and despicable stories, comments with the distribution over these 3 categories unfortunately not being 'normal', but skewed to the latter. The bulk is shouting, screaming and/or politically induced without much depth.

That is why we were ex-post happy that we had to go through a situation in which most of our firm's senior people were focused on something different, but unfortunately oh so similar because it dealt with plain economics.


What is going on in the Middle East is not so much a religious agenda in itself, although - as we will explain below - the way things played out has indirectly provided religious groups with tremendous momentum. The region is still relatively homogeneous in this respect with the vast majority of people involved being Muslims. True, their might be differences in their level of orthodoxy, or in their categorization as either Shia or Sunni. But was that what led to the explosion of revolutionary resistance?

In a recent speech for followers in Iran, president Ahmedinejad even claimed an Iranian indirect positive signaling effect by saying that it was all spurred by the great example of the Iranian Revolution back in 1979. We doubt strongly that this is the real story. And his forecast that it will spread into Europe and North America seems even more far-fetched if not ridiculous. He is of course following his own political agenda there.

But of course. This is also the time of foreign politicians all around the world screaming and shouting that they know what to do about the Middle East. Or that they have always warned the dictators for this result. The only big nations that seem relatively quiet in terms of comments and statements are the Chinese and the Russians. But aren't they always when it comes to criticizing foreign authoritarian regimes? And for well-understood reasons.

Europe and the US - the former colonial powers - still mainly treat the Middle East as an energy-rich colony. It is amazing how they seem to believe that a simple switch of leadership support - away from the dictators that were once their friends - and a consecutive embrace of the revolutionary resistance and a demand for human rights, democracy etc might enable them to maintain some kind of status quo.

Economic Exploitation with Postcolonialist Tendencies:
But was it really smart business thinking?

But that is the problem with the Western agenda. No way it will involve a real demand for democracy in the Middle East. Democracy! Think about free elections in Iraq or Bahrain: two countries where the Shia majority will wipe away opposition and gain control. Next step? Of course, a new government that will be congratulated quickly by Iran not just in words but also through economic support.

And what about Egypt? Aren't democratic changes possible there? Maybe, but as far as we can see the Muslim Brotherhood will remain a forbidden albeit well organized huge force in the country. But actually: now that there is less media attention for Egypt - it all went to Libya where Khadaffi is in big trouble - we see a subtle change. For the first time in more than 30 years Iranian navy vessels are allowed to travel through the Suez canal. In other words: the new leadership is milder towards Iran than Mubarak was. And there is of course nothing wrong with that. One is not to be convicted until proven guilty. And whatever 'proof' Westerners or others can come up with concerning Iran, there are at least an equal amount of cases showing the guilt of others, including these same nations. Actually, in terms of prophylactic measures there are dozens of countries who have done far more than Iran, but they somehow get away with it. The ayatollahs have a huge popularity problem. Similar to what Russians always have.

China can get away with almost everything, notwithstanding the fact that the Chinese leaders suppress any form of resistance probably in a far more radical way than the average Muslim leader in the Middle East (maybe with Khadaffi as exception when listening to his speech yesterday) would even think of. But is there much focus on China other than excitement over its economic possibilities? Not really.

The excitement over Libya is large. Far more than there was about Tunisia, Egypt, Bahrain. Reason: this is a big business country. Oil- and gas-rich. Khadaffi who moved from being a big enemy of not just us in the West during his period of Green, Islamic Socialism has moved to a position as friend of the West since 2003. The economic link with Italy improved to levels that can be considered 'warm and friendly' with dozens of firms and corporations on both sides of the Mediterranean benefiting and a substantial percentage of Italian energy needs being taken care of  by Libya. But business relations with other European nations and the US improved as well. It is therefore pathetic to see how herds of Western politicians try to portray 'anger and ignorance' when being confronted with weapon deliveries to Libya or atrocities committed by Khaddafi. As if they did not know!

And now that the end is near... Is he facing his final curtain?

The Libyans paid of their debts in Lockerbie didn't they? That is the line of reasoning most foreign governments and corporations followed. And they are rich (both financially and in energy resources), and can therefore now be seen as a friendly nation. And not just that: Khadaffi's role and influence in Africa could help protect Western interests there at a time in which China is expanding its powers on the Black Continent through huge investments.

But Khadaffi is now finding out the hard way that there are no friends in international politics when you go too far. Just like Mubarak did. And he and his regime did so during the last 40 years. Triggered by the international freedom sparks, resistance started and spread over the country from Benghazi via Tobruk to Tripoli...he and his sons cannot escape (or was the freaky, almost surreal speech yesterday shot from a film studio in Venezuela already?). It is indicative of his going too far - losing track of reality - that some of his foreign representatives (ambassadors etc) and his second man, an important army general (General Younis)- were among the first to switch sides.


And that is one of the problems for the Western world. You can say a lot about Muslim resistance. Call them terrorists or whatever. But you have to give them credit. Just as much as they were against certain things 30-40 years ago, they are against them now. Irrespective of the alleged dangerous powers of their enemies and irrespective of their wealth.

The power of religious  'business models' - be they Islamic, Judaic, Christian or whatever - is their stability and well-understood deeper intentions with in most cases a focus on social work for the poor and lower middle classes. Khomeini used it when leading the revolt against the Shah in Iran from his  exile in  France. And all around the Middle East we will see that those who only followed economic interests will now have a problem there. They have lost credibility compared to religious opponents. Not that these guys didn't follow certain economic interests as part of their bigger goal, but at least there goal was about so much more (when seen from the perspective of the lower classes in society).

And that has not so much to do with a new Islamic Renaissance as it has with the demise of Post-Colonialist economic opportunism. Was the period that we left behind us to the advantage of those that followed the opportunistic model? Either foreign influencers, or the local authoritarians?

Not an Islamic Renaissance, but the demise of Postcolonialism

Well, the corrupt leaders in the Middle Eastern countries involved will have to wait and see. Will they be able to get their hands on what they stole? Switzerland's actions against Mubarak and his bank accounts are just the beginning. Tunisia asking Saudi Arabia for the arrest of Ben Ali is another and there is more to follow. The well-known visible cases might get away with things when it comes to imprisonment, legal cases etc while probably having more of a tougher case if they want to reach their wealth. Although...think about the leadership in Iraq! On the other hand, the less visible opportunistic followers that were part of reigning families or one way or another associating with them are in big trouble physically, but might have a bigger chance to save parts of their stolen wealth.

And what about the foreign influencers? Directly and indirectly - through their oil and gas companies - Western nations will probably not really be held responsible like they were in their regular former colonies. They had on the one hand a good time, but on the other it is also clear that the continued nervousness in the Middle East (partly because of the dependence on natural resources and partly because of the geo-political problems related to Israel, the Palestinians, Iraq, Afghanistan and Iran) has resulted in higher energy prices, increased volatility of those energy prices and 'terrorism related costs' both related to local presence in the region and damage outside the region.

An alternative model in which it would have been understood that the current stand in the Middle East after the fall of the colonial empires did resemble postcolonialism and in which those countries would have been given more freedom to grow in their own way, with us dealing with them through trade and business relations, i.e. from a distance instead of through direct presence in the region, might have led to less skewed income distributions, more domestic economic growth, and slightly lower oil and gas prices and accompanying volatility.


So; what is the 'value' of the excess oil and gas reserve revenues that went to the West via oil and gas companies during the last 50 or more years minus all the costs related to local presence, volatility, higher prices in recent years when we have less control over these nations and lost economic trade in countries that were basically seen as exploitable commodity fields?

We believe that it is incredibly small if not negative. And that is when purely focusing on the economic numbers. When adding the moral costs related to doing to your neighbor (post-colonial occupation) what you would not like yourself) it is definitely a negative.

And it is exactly that combination - financial and moral costs - that will hopefully lead to a new start in the Middle East. The right reaction should be a loosening of control and Western influence. But the first reactions by politicians on both sides of the Atlantic seem to indicate that we will probably get some kind of more subtle form of the same. And we would not exclude that Turkey might play a growing role in that process as 'Real Politiker' (German word) extrapolating their current pragmatic stand that has led to economic growth (sigh, again) and growing influence. But it will of course be more of the same with different main actors on the local stages as new country leadership.And that is at least something. A new leadership that remembers how the former leaders went too far.

But through the influence of China, Russia, Iran, India the geo-political situation (and the economic one now that energy prices have made local Sovereign Wealth Funds in the Middle East forces to reckon with in international capital markets) ensures a better equilibrium. And that is good, not just for the world politically, but also for all of us economically.

But of course, the economic benefits will only be enjoyed in the longer run. The local people in the Middle East - who deserve our deepest respect - will one way or the other first have to go through a period of continued hardship. One in which they have to build - and not rebuild since they never got there in the first place - a new concept of a Nation.

And financial markets? As you know we believe in the longer term prospects of the Africa - Middle East region. Did recent developments change that? Not at all. If anything, we can expect a more egalitarian society within the countries of the Middle East with our energy hunger remaining unchanged. This does translate more into buying opportunities in various North African and Middle Eastern countries than in reasons to stay away for a longer period of time. But obviously, we need to closely watch the political situation and advise those who are invested in the region to sell part of their holdings when they have a profit. If not, stay. Not in the region yet?: wait along the sidelines: your buying opportunities will come during 2011-12

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