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Markets to wobble on oil, shake on West Asia’s youth frenzy

From Dubai and Kuwait through Qatar and Tel Aviv right upto the current epicentre Cairo, stock markets in the West Asia region have crashed following the political uncertainty in the region.

india Updated: Jan 30, 2011 22:10 IST
Gautam Chikermane

From Dubai and Kuwait through Qatar and Tel Aviv right upto the current epicentre Cairo, stock markets in the West Asia region have crashed following the political uncertainty in the region.

Over the weekend Egyptians were out on the streets wanting to oust the country’s dictator President Hosni Mubarak. Egyptians are perhaps inspired by the regime change in Tunisia, two weeks ago. In fact, regime change is becoming a contagion in the region and its impact is going to hit markets worldwide today.

For an entity that rarely looks beyond quarterly earnings and for which people living or dying are of no consequence in the immediate scheme of things, the logic for markets crashing in the region and the possibility of them spilling over to the rest of the world’s markets is fairly simple: oil.

The region controls more than a quarter of the world’s oil production, with Egypt producing 0.8% or 662,000 barrels a day. The biggest fear in the market is if this contagion moves to Saudi Arabia that produces 11.7% of the world’s oil.

Talks about a third “oil shock” — the first one being in the 1970s, the second during 2007-08 — are in the air. Which means prices of everything we know will shoot up, leading to serial political crises across the world. India, with an inflation rate galloping towards double digits will not be spared.

All this will lead to expenses of companies shooting up and eating into profits and hence making investments in companies risky, the argument goes.

That the West Asian region is volatile and on the brink of a desert fire is known to all. On Sunday, in a series of votes this month, 99% of Sudanese voted to split the African nation into two, by carving South Sudan out. On January 29, mass demonstrations and rallies brought Yemen into the uncertainty zone.

On January 14, Tunisian President Ben Ali had to flee the North African country following public protests. And though I have been arguing on my blog that Egypt may not see a regime change, I could just be wrong.

“An optimist might see the common thread in many of these developments to be the realisation across parts of the Arab world of the power of popular will to overthrow dictators, the first step toward democracy and a better life for the people,” James D Hamilton, a professor of economics at the University of California, San Diego wrote.

“A pessimist might see in at least some of these situations deliberately orchestrated chaos for purposes of seizing power by a new group of would-be ruthless leaders. A realist might acknowledge the possibility of both factors in play at once, and worry that ideologically motivated uprisings have often turned out to be usurped by groups with their own highly anti-democratic agenda.”

In the interest of stability of investments and inflation perhaps, Western powers have been supporting dictatorships in the region so far. But it seems West Asia’s young demographics — in most countries here more than half the population is under 20 — has finally caught up with its ageing politics.

With so many young, unemployed and angry men hitting the streets, regimes could fall like dominoes, forcing the world’s geopolitics around oil to change. The first steps towards that future are being taken today. How the world reacts to them will decide the fate of oil, global markets — and us.