Algeria Shows Symptoms of Resource Curse

“Oil settles below $39 a barrel for the first time since Feb. 2009″~MarketWatch

Given the dramatic decrease in oil prices, Saudi Arabia could cut investment spending, estimated to be about $102 billion dollars this year, by about 10 percent or more.  Although Arab Gulf countries face less oil revenues due to the drop in oil prices, they have not responded like Algeria did last week.  On August 17th, the Algerian dinar hit record low as its central bank tries to curb imports and deal with the less oil revenue coming in — which makes up over 90% of the government’s revenue.  Due to the fall in oil prices, Algeria’s oil revenues dropped by half. “Government officials expect them to bring in $34 billion this year, down from $68 billion in 2014,” according to Al-Arabiya News.

In response, Algeria devalued its currency — a drop of 105.48 Dinars to a dollar, from 79.6 Dinars to a dollar in 2014.  Consequently, the Algerian government is encouraging its citizens to “buy local”.  Yet, for the country of 40 million people, growing inflation will add to their cost of living woes: since April, inflation has climbed by almost .5%.

Less Oil Money, Less Spending?

But with all this concern about lower oil revenues and tighter government spending, military budgets in several “pita-consuming” countries remain high.  Check out The Economist’s map below charting the percent of each country’s GDP spent on its military — which they argue “only tells half the story”.  Absolute expenditures in US dollars would be more useful when considering that military operations should factor in arms purchases as well as research & development.  (The data points come from the International Institute of Strategic Studies.) Not surprisingly, oil exporting countries represent some of the largest in military spending as a percentage of their Gross Domestic Product:

  1. Oman- 11.9%
  2. Saudi Arabia – 10.4%
  3. Iraq – 8.1%
  4. Libya – 7.1%
  5. Algeria – 5.3%
Military Spending on Armed Forces by Selected Middle East & North African Countries

Military Spending on Armed Forces by Selected Middle East & North African Countries

Regarding Algeria’s currency crisis, it will be a challenge for them to maintain its large military apparatus–especially since it is a major employer of Algerians.

Comparing and contrasting with its other North African neighbors brings other questions to mind.  Specifically: HOW does spend the most of its GDP (7.1%) on military but has the lowest number of military personnel in North Africa (10,000 personnel)?  In contrast: How does Egypt, the most populous Arab country, remain at the bottom for military spending when it has the most in armed forces of all Arab countries?!  According to the graphic, Iran is Egypt’s only MENA rival regarding personnel.  Although Iraq and Saudi Arabia outspend Egypt regarding military personnel, it remains harder to believe that Egypt is allocating so little of its spending towards maintaining its military might — especially considering that all three receive some type of U.S. military assistance.

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In other country purse strings news: Turkey’s bonds are trading “like junk“, which may prompt a ratings downgrade, according to the DC-based think tank, the Atlantic Council.
Saudi Arabia seeking advice on cutting the budget in wake of oil crash
Saudi Arabia is seeking advice on how to cut billions of dollars from its 2016 budget as a result of a global slump in crude oil prices. The government is working with advisers on a review of capital spending plans and may delay or shrink some infrastructure projects to save money. [Bloomberg, 8/25/2015]

Swiss advance bid to return $40 million stolen from Tunisia
A Swiss official says his country has made headway toward returning some $40 million that was stolen from Tunisia and has been sitting in Swiss banks since 2011. Valentin Zellweger, a legal adviser to the Swiss government, said Monday the federal prosecutor and highest court still have to take steps in the restitution case, but that the process has come a long way. Zellweger declined to specify who had deposited the money in Switzerland, but said it wasn’t former President Zine El Abidine Ben Ali. [AP, 8/24/2015]

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Economic Impact of Iran Sanctions, or “PersiaStroika”

“Our countries (United States and Iran) can reach a detente — or ‘Persia-Stroika’ if you will” ~ Jon, Stewart of The Daily Show  [Note: “Perestroika”, or “openness”, was a term coined by Soviet leader, Mikhail Gorbachev in 1986, to describe the warming of relations between the U.S. and the Soviets]

“Insofar as eased sanctions permit, billions of dollars will be needed to reverse production declines and re-establish production growth. How realistic are Iran’s aspirations to attract such investment, and what increased production and exports can be reasonably expected over the near to medium term?

In turn, what will be the impact of increased Iranian exports on its neighbors, notably Iraq and Saudi Arabia, and their desire to secure a larger share of the global market? How will the Saudis and other Gulf monarchies react to Iranian moves? What are the implications of changes in Saudi national and energy leadership and of Kurdish moves to produce and export separately from Baghdad? What is the effect of these regional changes on the global energy balance?”

-Woodrow Wilson Center

PITAPOLICY’s response to the Woodrow Wilson Center’s discussion of Iran’s nuclear deal and economic impact immediately follows.   Another version appeared on Huffington Post “Peaceful Civilian Nuclear Energy Means Monitoring & Money-Making” by Mehrunisa Qayyum.

The keypoints made by the Woodrow Wilson Center’s invited panelists are included at the bottom of this post. 

Iran believes that the nuclear framework agreement will bring about foreign investment in its oil and gas sector.  Iran is not alone in its optimism because the nuclear framework agreement spells out ending economic sanctions.  Ending economic sanctions means that even skeptical countries can profit legally.  UAE trade with Iran spells out 13 billion reasons for the UAE to reconsider its nuclear neighborhood.  (Unlike Israel, Iran is now party to the Treaty on Nonproliferation of Nuclear Weapons, or NPT.) Earlier this week, an IMF paper projected that the UAE may benefit in a 1 percent real GDP growth yearly, until 2018.

With or without a handshake between the U.S. and Iran, there is a “strategic advantage”, satirized The Daily Show in this clip entitled “Iran Man 2”. (Yes, the phrase “PersiaStroika” was used… and it’s not a joke.)  <div style=”background-color:#000000;width:520px;”><div style=”padding:4px;”><iframe src=”http://media.mtvnservices.com/embed/mgid:arc:video:thedailyshow.com:e50565f8-357d-4cc9-84ba-b71991cbe707″ width=”512″ height=”288″ frameborder=”0″></iframe><p style=”text-align:left;background-color:#FFFFFF;padding:4px;margin-top:4px;margin-bottom:0px;font-family:Arial, Helvetica, sans-serif;font-size:12px;”><b><a href=”http://thedailyshow.cc.com/”>The Daily Show</a></b><br /><a href=”http://thedailyshow.cc.com/full-episodes/”>Daily Show Full Episodes</a>, <a href=”http://thedailyshow.cc.com/videos”>More Daily Show Videos</a>, <a href=”http://www.cc.com/full-episodes”>Comedy Central Full Episodes</a></p></div></div>

All physical activity will be monitored, stressed President Obama in his remarks following the Iran deal.  Why is Obama so confident about the monitoring clause?  The U.S. is resorting to the classic neighborhood watch approach via proxy: supporting a peaceful nuclear program in an Arab Gulf nation (the United Arab Emirates).  Since 2009, the UAE has received the U.S. greenlight to “own an ambitious nuclear power program with significant capacity being on line by 2020.”

In 2009, the U.S. established the 123 Agreement for Peaceful Civilian Nuclear Energy Cooperation agreement with the UAE.  Essentially, the “123 Agreement” allows the UAE to obtain US technical expertise, materials and equipment to pursue peaceful civilian nuclear energy use.  In exchange, the UAE agrees to forgo enriching uranium at home and reprocessing.  The UAE’s pursuit of alternative energy, under the watchful eye of the U.S. and International Atomic Energy Agency, may plug in its other Gulf Cooperation Council (GCC) members into the electricity grid.  With the “123 Agreement”, the U.S. has the physical capability for increasing its close range monitoring of Iran.

On that note GCC member, Saudi Arabia, is not too far behind with its own set of nuclear power plant plans: aiming for 16 sites by 2035.  Before Iran’s more hardline president, Ahmedinejad, there were constructive relations between Saudi Arabia and Iran.  Given this, it is possible to return to a more constructive relationship as the Islamic State threat becomes a shared common top interest.  “Interests trump ideologies,” asserted Jean-Francois Seznec, Non-Resident Senior Fellow, Atlantic Council at a Wilson Center Energy Series panel.

Plus, there is an opportunity for American and other foreign contractors to facilitate the billion dollar operation.  Specifically, the UAE accepted a $20 billion bid from a South Korean consortium to build four commercial nuclear power reactors at Barakah.

Despite the political discomfort many Arab countries may have with Iran’s nuclear framework, there is an element of economic discomfort among oil-rich, Arab countries because they will compete with the fourth largest oil reserve in the world.  Aside from market competition, not all oil-rich, Arab countries will suffer economically.  In fact, some welcome what the nuclear agreement means from a business standpoint: the easing of economic sanctions and opportunities for increased trade. UAE economists anticipate about $27 billion USD to be earned in trade between the Iran and the UAE–Iran’s biggest non-oil trading partner.

 

Panelists’ Key Talking Points

David L. Goldwyn, President, Goldwyn Global Strategies LLC

  • Three problems: symmetrical federalism of Iraq where you have three emirates
  • politics are unraveling the KRG-Baghdad deal: Baghdad hasn’t paid Kurdish region what it’s owed
  • Iran talks aggravate future of Iraq oil production
  • Rapprochement must be on security before economic issues. e.g. Yemen, Iraq & Hezbollah.

David Gordon, Senior Advisor, Eurasia Group Skeptical on Iran-GCC energy negotiations

  • Islamic State more assertive behavior than Russia “strategic surprise”: decline of post-Ottoman states.
  • traditional alliances are hedging: e.g. Saudi Arabia and Russia
  • Look at Libya because they put downward pressure on price in 2014
  • The two biggest issues looming are inspector access and the 11:59 Iran demand of lifting UN embargo.  The U.S. will never acquiesce on 11:59.

Julia Nanay, Principal, Energy Ventures LLC

  • Iran’s potential w/neighbor of Oman only on gas pipeline agreement–if they can get over their quibble on price. Iran is the 4th largest oil reserve. Even if no deal, South Fars field is far along enough. different story for oil.
  • Iran would like to return to 4 to 5 mb/d and be the second largest exporter
  • LNG markets have changed; don’t see price coming down.

Jean-Francois Seznec, Non-Resident Senior Fellow, Atlantic Council

  • Depending on International Oil Companies, but ultimately will focus on natural gas.
  • Saudis have another vision, through civil service lens, not family lens as they have built 3.3 mb/d capacity for energy products;Civil service in Saudi Arabia has tried to express that they should not rely on the production of crude oil and emphasize more downstream production and let Iraq follow “Third World” country path: produce raw materials.
  • Optimistic: Not too worried about Iranians coming back to market; will ultimately be okay on energy negotiations with Iran.
  • Before Ahmedinejad, there were constructive relations between Saudi and Iran.  Possible to return to this once IS threat becomes shared common top interest.  Interests trump ideologies.

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Terrorism Hijacks Local Economy

“We must…confront the fact that poverty is producing terrorism,”~Beji Cadi Essebsi, Party Leader of Nidaa Tounes

Tourism is what matters.  Terrorism is its anti-matter.  Tourism pretty much gives life to Tunisia’s economy (after agriculture) as it employs about 500,000 of Tunisia’s 9.1 million people.  Since 2014, tourism grew six percent in Tunisia. Terrorism increases security costs to the state and kills foreign direct investment.  So when Tunisia’s coalition party leader argues that poverty is the force behind terrorism, we have a problem.  This presumes that terrorists are baited into violence with promises of money for carrying out violent acts. Hmmmm, it would be helpful to look at Egypt, which also has a tourism-based economy that implements heavy security state measures to deal with its history of terrorist attacks on tourists.

Error Within Terrorism

Terrorism is more than just about poverty.  When we visited Tunisia in 2014, Tunisia’s tourism sector appeared to show signs of improvement after tourism actually took a vacation from Tunisia following the ouster of the Ben Ali regime.  However, unfortunately, the June 26th terror attack off the Tunisian coast of Sousse left over 35 dead, mostly foreign tourists.  Consequently, Tunisia’s terror attacks ultimately hurts local Tunisians more than the “foreigners” that affiliates of the Islamic State purport to be targeting for their violent, territorial purposes.

A fall in tourism revenue will not only slow the economy further, but also lead to smaller foreign-exchange reserves and a higher current-account deficit, which was 7.4 billion dinars ($4.4 billion) in 2014.~The Economist

It was like Luxor, Egypt 1997 — leaving 68 dead and devastating an entire nation’s economy — all over again.  The difference between Tunisia’s June attack and the Egypt attack is that Egypt’s attack was carried was funded by the Al-Qaeda network.  Tunisia’s attack was carried out by a single person and didn’t require heavy funding.  (Again, the attacks on tourists erupted in the post-Mubarak Egypt after a suicide bomber attempt on the Karnak Temple on June 10th.  No one was killed.)  Mind you, just a few months earlier, the terrorist attack of Tunisia’s Bardo Museum in March triggered a wave of frustration among security forces and civilians.

Tunisians’ perceptions reflect the fragile state of the country’s economy and highlight fears that the two attacks this year could have devastating repercussions. In fact, Essebsi, who declared a 30-day state of emergency this weekend, predicted another such attack would “cause the country to collapse.”

As we said earlier, even if non-Tunisians are targeted, Tunisians are the ones paying the price of terrorism.  According to a Gallup poll, 51 percent of Tunisians believed that Tunisia’s economy was ‘getting worse’ since the Bardo attacks.

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SELL, SELL, SELL … “Bye-Bye” Reform Ceiling #Saudi

Greetings PITAconsumers… and best wishes to those of you observing the practice of abstaining from food, drink, and smoking 😉 from sunrise to sunset.  Fasting has begun on the first day of the Ramadan month!  But for those fasting and non-fasting, we can now all hear, “SELL, SELL, SELL” in Arabic/English/French on the Saudi Stock Exchange floor.  Hence, we can all celebrate how on June 16th, the last of the G-20 countries, Saudi Arabia, opened up its stock exchange to foreign companies.

Saudi’s stock exchange is ‘Tadawul’ and operates from Sunday though Thursday, while trading is allowed between 11am to 3:30pm.  There are only 165 companies, and here’s why according to BBC:

 

there are a multitude of rules to determine who can invest in the gradual opening-up of the Middle East’s biggest stock market.

They appear to be quite restrictive. Only institutions that manage $5bn (£3.2bn) of assets (or $3bn if the regulator makes an exception) with a five-year investment record will be given the green light for now.

No single investor can own more than 5% of a company and overall foreign ownership of that company cannot top 49%. Overall, only 10% of equity in the stock exchange, called the Tadawul, can be foreign-owned.

Saudi Arabia could be exercising caution for non-economic reasons.  With more openness to foreign investment, comes more opportunities to open debate to outside (and internal) discussions on social and political reforms. Foreign companies will have more say on the ongoing labor practices, many of which rely on quotas and exploiting foreign labor from its poorer neighbors: Yemen, Pakistan, Indonesia, Philippines, and India.

Given Saudi’s new king — but still old (age 79) and from the generation that first witnessed Saudi’s growth between World War I and World War II — H.E. Salman, cabinet reshuffle, and the recent transformation of its ‘Supreme Oil Council’ expanding into the ‘Supreme Economic Council’, the ruling powers acknowledge the demographic shift since the 1980s.  Let’s wait and see if all changes or “non-changes” are solely because of oil’s existence.

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Yemen Has Two Options

Once upon a time, there were seven brothers. Mother Earth blessed the first six with gold. Father time buried the youngest one’s treasures very deep beneath the sand. Mothers and fathers worry about sibling rivalries. Sheba took care of the youngest, who befriended others outside the home. The first six formed the GCC; the youngest was bombed. End of chapter 3. ~Mehrunisa Qayyum 5/18/15

This sentiment came up again at the Wilson Center, a DC-based think tank after civil society activist, Mohammad Al-Shami, presented his view: “Yemen has two options – living under a regime, whichever it may be or living in crisis.”

Al-Shami shared where Yemen’s society stands nine months since Yemen’s civil unrest erupted into a crisis resulting in what we see today: a multi-country, military campaign to eliminate rebel fighters, which is spearheaded by Saudi Arabia. He argued that civil society serves as “the strongest source of information right now”.  Yet, despite his argument that Yemeni civil society is a force, dead Yemeni civilians may disagree with that assertion.  In Yemen, 80 percent of the population are in need of immediate humanitarian aid.

Why is Yemen a crisis?

Reason #1: Thousands of Yemeni civilians have been killed in airstrikes that were supposed to target Houthi fighters–but didn’t.

Reason #2:  Outside Players Co-Opting Local Players

Four years after Yemen ousted its authoritarian leader, Saleh, he continued to play politics.  Al-Shami argues that the crisis took form because Yemen’s political players do not work with its local civil society because they can operationalize agendas with military force.

 

These political powers are more comfortable in conflict than in peace.

Political powers include Yemeni tribes, Houthis, exiled ex President Salah, GCC, Iran, Turkey, Al-Qaeda, and a myriad of groups who have taken up arms in the name of any of the above.  Oh yeah: ISIS has managed to insert itself in the name of taking down Houthis… while opposing everyoneelse too.

Reason #3: ACCESS PROBLEM

It is very difficult to access villages. There are many villages being deprived from lack of water and food.

Yemen’s humanitarian dilemma is compounded by Yemenis access problem.  There’s no food, no water… and many villages are deprived of this in Taiz and Habebah.

Reason #4: NO OPTIONS FOR YOUTH

Al-Shami traces Yemen’s unrest back to youth not having many options. Fighting is fueled by youth who do not have options.

[Yemen’s ]youth wanted to do town halls, they wanted to do work shops, they wanted to do art campaigns.  They either stay home or fight. – Al-Shami

The youth needed to see the other fight going on within civil society, according to Al-Shami… but we were hoping for some specific examples happening in Yemen.

Noting all these reasons, Al-Shami calls upon international NGOs to support Yemen’s local civil society.  He argues that the focus on Yemen cannot just be the immediate need to deliver humanitarian aid.  Short-term efforts like this are necessary, but will not stem the reasons for civil unrest to explode into what we see today: war.  Rather, NGO commitments to Yemen need to be viewed in 10 year horizons– 3 years at the very least, “We need to start realizing, specifically short-term, is helpful, but must focus on capacity building for long-term.””

Even $200 can make a huge difference on the local level in Yemen.

Examples of requested NGO support include Yemen civil society to educate each segment of society.  Though, we are confused about his request for educating the military.  Al Shami stated:

Restoration of military needs education for soldiers on human rights law.  Soldiers violate [human rights] not because they want to, but they might not know what [actions] makes up human right law.

Picking up from sentiment above, here’s how chapter four could start:

Suddenly, the youngest stood up and said, ‘Enough!  Although we are a desert without water, we have rivers…of blood…which now flood our towns.’  We have two options – living under a regime, whichever it may be or living in crisis.  One may suffocate, but the other has already suffocated our children.

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Leveraging Cultural Practices of Hospitality in the Hospitality #Biz

 

The three hubs of Dubai, Abu Dhabi, and Doha are blessed with fortunate commercial geography: They are a four-hour flight to one-third of the world’s population and an eight-hour flight to two-thirds.  Any self-respecting McKinsey study would have told these governments to build air hubs and national airlines to exploit their comparative geographic advantage. And they did.~Afshin Molavi

Source: Foreign Policy Magazine, May 4, 2015. Full article: http://foreignpolicy.com/2015/05/04/dubai-qatar-etihad-emirates-fair-skies-open-skies-american-delta-united/?wp_login_redirect=0

Flying any Gulf air carrier in the last three years has rekindled our love for flying.  After traveling on a United Flight, and being charged for blankets, food, and headsets, one could only expect to be charged a toll for using the toilet.  Indeed it is no surprise that the UAE, Saudi Arabia, Qatar…and Turkey have leveraged their cultural practices of hospitality IN the business of hospitality–namely in the airline industry.

Molavi’s article raised a range of points –that not only surprised us — and prompted the following questions:

  1. By 2027, Gulf carriers (Qatar Airways, Etihad Airways, Emirates Airlines, and Saudia Airlines) will add another 500 some aircrafts by purchasing from Boeing in America and Airbus. Will the Gulf countries be able the engineering and technical staff for maintenance and upkeep from local hires? Or will they go through the dejavu experience of the 1970s and 80s?
  2. If UAE’s Elitihad Airlines started with two airplanes leased by Pakistan, and SUCCEEDED by becoming the largest airline in the world, then how many other opportunities has Pakistan missed in the hospitality and tourism industries?
  3. How will top Arab airlines deal with its neighboring competitor, Turkish Airlines?  They’ve launched an aggressive campaign in the U.S. to compete for American travelers going to the Middle East as well.
  4. The UAE observes an “Open Skies” policy, where any commercial airline is free to land in the UAE.   Regarding airline industry policies and government relations: How fair or unfair is it for countries to subsidize the airline industry?  Governments compete for oil and gas interests on behalf of oil/gas conglomerates… should the same geopolitical rules of play apply to the airline/tourism sectors?

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First US-GCC Summit on Regional Security Tables Yemen on Agenda

Once upon a time, there were seven brothers. Mother Earth blessed the first six with gold. Father time buried the youngest one’s treasures very deep beneath the sand. Mothers and fathers worry about sibling rivalries. Sheba took care of the youngest, who befriended others outside the home. The first six formed the GCC; the youngest was bombed. End of chapter 3.

Yemen’s five-day humanitarian ceasefire finished Sunday, May 17th.  During this time, three days of talks were held between Houthi leaders (who are also aligned with military units pledging to ousted ex-President Salah) and current Yemeni president (who was exiled by Houthis in 2014 and returned) with Saudi support.  Consequently, the coalition to extricate the Houthi-led resistance in Yemen resumed.  The coalition is led by Saudi Arabia and includes the other five Arab gulf countries and Turkey, among others.  The most ironic part is that those countries participating in the airstrike campaign overlap with those countries trying to facilitate Yemen’s national dialogue while delivering humanitarian assistance to a country that has lost 1,400 in the month long air strikes–many of which are civilian.  Actually, no, the most ironic part is that the first U.S. Gulf Cooperation Council Summit on security does not result in a formal agreement at a time that another Arab Gulf country (yes, Yemen, the 7th brother who is also the least financially blessed…) is undergoing air raids and risks a ground invasion.

Political blogger, Karl Sharro, created a diagram that essentially captures the complicated relationship between the countries regarding the Yemen issue.   His diagram below has been copied by many, including news outlets…and inspired the short story–even though he was half-kidding.   (Even jokes speak to some level of truth!)

KarleRemarks Institute of Internet

KarleRemarks Institute of Internet

 

First U.S.-GCC Summit

Yemen’s ceasefire, which started on May 12th, overlapped with the first U.S.-Gulf Cooperation Council summit at Camp David.  However, the summit concluded on Thursday without any formal agreement on security  or training exercise issues as the six-nation regional body had hoped would occur. (Source: http://www.politico.com/story/2015/05/camp-david-arab-leaders-no-security-agreement-117980.html) Yet, how realistic was this outcome when most of their heads of state were absent from the first gathering?

Some will argue that Saudi Arabia’s new king was never going to attend because Saudi Arabia — and other Gulf nations — is upset over the U.S.’s ongoing talks with Iran, which are set for June 30th.  BBC, U.S. News & World Report, Politico, and other American news media reported that the leadership of Saudi Arabia, Bahrain, UAE, and Oman calculated a joint snub to the U.S. by appointing delegates to attend instead.

Let us entertain this possibility and see who wins and loses if GCC nations downplay this opportunity to formalize what UAE Ambassador to the U.S., H.E. Al-Otaiba, described as a “several gentlemen’s agreements between the U.S.” and Arab Gulf nations like his.  Speaking at the Atlantic Council with former Middle East Envoy, Martin Indyk, Al-Otaiba emphasized that the UAE has “fought in six wars with the U.S. and wants recognition” to be recognized in the U.S.-GCC Summit process and future relations.  He hopes that the U.S.-GCC summit will be a yearly exercise, but this is unlikely if a collective regional snub is perceived–orchestrated or not.

But without getting into the psychological drama of orchestrating a snub, there may be other explanations for some Arab Gulf countries’ leadership absence on May 13-14.  In the UAE, its top leader is old and sick.  Furthermore, as we have seen in Ambassador Al-Otaiba’s comments, there is a strong interest to discuss missile defense systems and solidify security arrangements.  Hence, they are sending their Crown Prince in his place.

Shakueup #1: Saudi House-Cleaning

The leading, supposed “snub” leader is Saudi Arabia.  However, Saudi Arabia just underwent two huge shakeups.  The first shakeup was political-economic re-organization– or about “process” in business speak:

  • Saudi Arabia’s state-controlled oil firm Aramco separated from Saudi’s oil ministry as part of restructuring.  Aramco is now under the Supreme Economic Council, which replaced the Supreme Petroleum Council, and is led by Prince Mohammed bind Salman, who is second in line to the Saudi family throne.  Officially, the broader economic health of Saudi Arabia is no longer just about petroleum.
  • Currently, no prince has overseen the oil ministry to avoid politicizing the ministry within the royal family.  This may change as business practices change.  Nepotism is also a business practice in the oil industry.

After this type of shakeup, would not a country want to reassert its power structure in an international summit?  Well, Saudi did by taking lead in the Yemen campaign and enlisting the U.S. support with intelligence on targeting Houthis and the Al Qaeda elements in Yemen.  So, honestly, there’s probably more harmony between the US and Saudi than being reported.

Sure, the GCC is uncomfortable with the U.S. talks on Iran.  But that is why the U.S.-GCC Summit was being convened in the first place: to discuss GCC regional security arrangements with the U.S.

Shakeup #2: Yemen Campaign

The second shakeup is that Saudi Arabia has been leading the military coalition in Yemen.   PITAPOLICY, LLC was interviewed by Shadyar Omrani of Irani news Radio Zamaneh regarding Yemen: http://www.radiozamaneh.com/219357.  In a nutshell, Yemen’s internal conflict has resulted in different internal groups becoming hijacked by bigger neighbors engaging in another proxy war– sprinkled with elements of what is believed to be Al Qaeda.

Here’s what Qayyum stated regarding the airstrikes on Yemen because of the Houthi uprising, which is believed to receive financial support from Iran:

  • Omrani: The first question is about the two sided coalition in Yemen confronting. How do you define the two sides and their interest in Yemen? Iran and the allies on one side, Saudi and the allies on the other side.

 

Qayyum: I don’t see it necessarily as hard and fast 2 sided disaster.  As long as there are disruptive elements, beyond the Houthis in Yemen, then external players will realign for short-term gains.  There’s enough disruption that is being co-opted by various entities that are “loosely allied w/each other”.  For example, the Al Qaeda element in Yemen is at least a decade old–festering since the USS Cole was bombed in the late 90s.  So, of course, the U.S. has kept its eye on Yemen, and is the reason for the U.S. agreeing to supply some intelligence to the Saudis to bomb Yemen.  Saudi tried to expand its alliance by pressuring Pakistan to engage with them in military operations, but Pakistan stayed out of this so-called coalition.

  • Omrani: About Houthis, do you see their role in Yemenis revolution as a result of Iran’s plan for expanding its power in Bab el-Mandeb or an uprising of a mass of the suppressed?

Qayyum: I don’t see Houthis’ role as a direct result of Iran’s expansion plans.  The Houthis leveraged an opportunity of discontent post elections.  Yes, Iran may wish Houthis well in their political objectives, and support them, but so has Saudi Arabia in its support of certain Yemeni tribes.  When unemployment rates are double digit in a country like Yemen, bigger countries like Saudi become more alarmed when neighboring migrants are looking for work elsewhere.

 

 

 

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Middle East’s Oil Industry Remains Strong Despite Turmoil

Middle East’s Oil Industry Remains Strong Despite Turmoil

By Kim Reynolds

In the world of investment, the prices of important commodities go up whenever there’s political turmoil that can strain the flow of trade. Oil’s value has always been volatile because the Middle East, a major producer of the precious black liquid, is no stranger to geopolitical issues. In light of recent events, however, it would seem that the region would have to adjust to a new setup as the U.S. now has an increased supply of oil for themselves.

Disturbance in oil production or shipments due to strife used to be the major reason why prices of precious commodities go up in the U.S. However, oil prices in the global market showed no signs of an upward movement in the past couple of months. Even with radical groups spreading violence all over the Middle East, oil prices and production remained steady, especially in the country of Iraq. As of this writing, oil is at $56.13 per barrel.

In Southern Iraq, oil exports remain steadfast and even reached new highs. Unaoil, one of the biggest oil companies that serve Iraq, opened a North Rumalian hub last year in order to support its growing operations in the country, and reports say that geopolitical concerns do not have a major effect on the firm’s ventures.

The U.S. used to rely heavily on the Middle East for shipments of oil but now, hundreds of private companies are involved in the oil production of the country. Despite its abundance of oil, however, Amos Hochsten, the U.S. Special Envoy for International Energy Affairs, said that the U.S. must still maintain and deepen its relationships with the countries in the Middle East. After all, there’s no guarantee when the U.S. will need support again from one of the major oil producers in the country.

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Kim is a freelance writer specializing in business news. She used to cover fashion shows in 2004 but her interests changed when she made her first investment. In her free time, she likes reading novels written by Sidney Sheldon.

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Rosseau Isn’t the First, nor Last, to Negotiate a ‘Social Contract’ #BreakTheCycle

“50% of Arab world citizens are dissatisfied with public services in their area,”

according to the World Bank survey — which prompted not one, but two sessions at the Annual World Bank/International Monetary Fund Spring 2015 Meeting. So it was no coincidence that the meme #BreaktheCycle emerged in another MENA panel, which also revisited the theme of the social contract in both oil-importing/exporting countries. In all honesty, it was easy to borrow some of the tweeted comments from the live webcast of “Trust, Voice, and Incentives: Learning from Local Successes in Service Delivery in the Middle East and North Africa” because the #BreaktheCycle meme applied to daily life struggles by MENA citizens receiving public services — assuming that they ultimately received service.

Many of the tweeted comments read like a customer service hotline for a company that made a series of errors. For example:

  • @ayadsalman 44% of students in the #Arabworld attend schools with severe shortages of instruction materials. #Breakthecycle
  • “public services ‘?’ what does that mean” #egypt respondent wrote on @WorldBankMENA survey #breakthecycle
  • @WorldBankMENA: Citizens in the #Arabworld pay ‘wasta’ but its negligible in some localities, to over 90% in other localities. #BreaktheCycle

Such comments further supported the call for a new ‘social contract’ throughout the MENA region.
The new social contract should cut down on oil subsidies, asserted the World Bank’s Chief Economist of MENA, Shanta Devaranjan and Dean of the Board of Executive Directors, Mirza Hussain Hasan; and World Bank Vice President, Middle East and North Africa, Hafez Ghanem.  However, when asked if Arab countries would share a uniform social contract, a key distinction surfaced: Hasan focused on oil-exporting countries’ need to review oil subsidies whereas Devaranjan stated that each MENA country will have renegotiate its own ‘social contract’, thereby implying that no uniformity should be expected.

Redefining social contracts sounds great in theory … and in practice.  ‘Social contract’, a phrase coined by Jean-Jacques Rousseau outlining the expectations the individual has of society and vice-versa. Somehow, government assumes the role of key intermediary. However, one cannot take Rosseau’s thinking too literally because his political philosophy held controversial implications, namely that “aristocracies tend to be the most stable”.

Given the Arab transitioning countries’ political shifts, none of their movements supported maintaining aristocracies (Tunisia, Egypt, Libya, and Yemen). In particular, Tunisia’s movement organized to rebuff the political aristocracy that also held significant financial clout. On this cautionary note, PITAPOLICY looked beyond the French political philosopher — surely, other cultures must have hinted at the concept of social contracts prior to the European Enlightenment.  A few examples come to mind: Abu Nasir Al-Farabi, and Hammurabi’s Code .

Al-Farabi alluded to the social contract between individuals and society in the 9th century, thus influencing Rosseau’s work, according to European philosophy historians (Source: Breaking With Athens: Alfarabi as Founder). Although Hammurabi’s Code originated in ancient Babylonia, it is a document that outlines what an individual may expect from a society, and vice-versa.

Whether one vehemently agrees, or disagrees, about who originated the term ‘social contract’, one can at least agree that political philosophies thrive or retreat based on civil societies’ reactions to the status quo.  Based on the comments from the participants, an overwhelming number of MENA parents want to break the cycle of teacher absenteeism.  Also 44 percent of students in the Arab world attend schools with severe shortages of instruction materials. (This would resonate with several parent teacher associations in schools just 10 miles away in Southeast Washington, DC.)

On that note, a Jordanian civil society organization representative argued later that political reform is needed to actualize a new social contract, which is why her organization is “lobbying to raise the quota for women in parliament”.

Political philosophies evolve, borrow, reorient, and reinterpret to better respond to societies pressing socio-economic issues.  Therefore, we remain eager to see how each Arab transitioning country entertains political debate on economic policies (taxes, subsidies, and NGO grants) in parliament.  It is only one arena — albeit the slow one — where each country’s respective social contract will be renegotiated. The second arena is the government agency responsible for delivering a service.  The third is civil society in its power to engage.

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Breeding Employees or Entrepreneurs in the Middle East & North Africa Region

Finally, after having this piece rejected twice, PITAPOLICY questions on strategies to address the employment gap are here–at least the first part: http://www.huffingtonpost.com/mehrunisa-qayyum/generating-employment-opp_b_7041812.html  As usual, PITAPOLICY remains wary of trends since the same ideas get recycled with newer catchphrases or dressed in rhetoric that is politically enticing.  The mantra of “breeding and creating entrepreneurs” sounds promising, but does this give Arab transitioning countries a realistic hope in employing its masses?

  • Strategy 1: Encourage everyone to believe that he or she should start a small business.  Hope that the business succeeds after the first year and amasses a profit.  Expect successful entrepreneur to expand and hire others.  How many of these successes can we expect over the span of 5 years?  How many unemployed will be converted to full-time employees of these sole-enterprises?
  • Strategy 2: Encourage foreign firms to establish in-country while establishing conditions for local hiring.  Local populations don’t possess the “skills” argues the foreign firm.  Offer incentives to foreign firms to train local hires.

Would it not be more sensible to retrain underemployed populations and rising graduates into sectors that would hire them?  For every entrepreneur, how many others will he or she really be able to employ once the new business has accrued enough of a profit to expand its operations to hire beyond the sole-entrepreneur?  We consider both strategies below and in the hyperlinked piece.

After the IMF-Worldbank Spring meeting concludes this week, PITAPOLICY will post the second part of the longer article.

Since the Arab Spring, the West has focused on individual entrepreneurship in MENA. Not surprisingly, both Arab transitioning countries (Tunisia and Egypt), and non transitioning (the UAE, Qatar, Jordan, Morocco and Saudi Arabia) are pursuing the industry-government coordination model to promote entrepreneurship by sponsoring large industry conferences. What’s the impact of these large industrial conferences on Arab world unemployment? Are we seeing local Arabs employed, or “diverted” on to the more romantic path of entrepreneurship? Encouraging entrepreneurship in the Middle East and North African region morphs into generating employment opportunities, when in fact, implementing this approach requires more time, skills and resources that compete with large industry forums catering to bigger (often foreign) firms. [Click here to continue.]

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