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How the Middle East Crisis Will Impact the U.S. Economy

February 24, 2011

    by Eric Hammer | FTMDaily Contributing Writer

    TEL AVIV, Feb. 24 – The world has been watching and waiting to see what would happen with the Middle East Crisis for the past few weeks now, ever since Tunisia managed to overthrow their leader and declare an age of democracy in that country.

    The protests quickly spread to other countries in the area, though most of us here in Israel were caught off guard by some of them. Benjamin Netanyahu, for example, definitely didn’t expect to see his good friend Hosni Mubarak end up out of power and retired in so rapid a fashion.

    Netanyahu Blamed for Failure to Predict Mubarak’s Fall

    In fact, the failure of Mr. Netanyahu and his advisors to predict the fall of Mubarak has been compared in some of the Israeli newspapers to the failure by Golda Meir and Moshe Dayan to predict the Egyptian invasion of the Sinai in 1973 (when Israel came closest to losing a war because we were caught off guard with most of our soldiers away for the Yom Kippur holiday).

    Libya is Next, Surprisingly

    Had you asked Israelis to predict which government would be the next one to topple just a week or two ago we would have all said Jordan. In fact, The Jerusalem Post, Israel’s English language newspaper of record did ask that question in a poll a few weeks ago and the results showed exactly that.

    I’m still not sure what to make of the fact that Jordan’s King Hussein seems to be hanging on to power, though I do understand very well why Egypt fell and why Libya is under siege, with lesser protests in places like Yemen, Iran and Iraq.

    I also think the reason that Egypt fell is the reason that certain other countries, such as Saudi Arabia won’t fall (and yes, this has quite a bit to do with the world economy – read on).

    Protests Didn’t Erupt in the PA and They Won’t Come to Certain Countries Either

    Here’s why I think that we won’t see these kinds of mass protests in places like Saudi Arabia, Kuwait or the United Arab Emirates: because we’re not seeing them in the Palestinian Authority.

    Now you may be wondering what one has to do with the other. You may even be considering that the link between the two is actually about solidarity amongst Arabs, but you’d be wrong. Here’s why:

    Arab Countries Don’t Do Much More Than Talk

    Many Arab governments talk about solidarity with the Palestinians and their problems, but they don’t do much more than talk. Here are a few examples of what I mean:

    Over the past few years, Arab countries have pushed for UN resolutions to embarrass Israel and they’ve refused to make peace with Israel. In fact, when President Obama asked the Saudis for some symbolic gestures in exchange for Israel making gestures towards peace, they told him to take a hike. (He had asked for Israel to get the right to fly commercial aircraft over Saudi airspace on the way to and from Asia, but was told no.)

    Looking at another Arab country, Lebanon, in the 60+ years that Palestinians have been in refugee camps in that nation, they have never been given the right to work outside their refugee camps. Nor have they been given rights of citizenship, nor have such rights been given to their children, grandchildren and even great grandchildren who were born there.

    And Lebanon is just one example – there are Palestinian refugee camps located in a number of Arab countries and none of them have agreed to allow these people to move on with their lives in their new countries of residence, nor have their offspring been given that right.

    Plus, very little money has been given by the Saudis, Kuwaitis and Emirates, all of them very wealthy nations to help the Palestinian Authority to build itself up. Almost all donations to the PA come from Europe and the United States.

    Why Protests Didn’t Spread in the PA and Why They Won’t Spread In Certain Countries

    Now, all that having been said, we’re still left with a question: if it’s not solidarity that causes a link between the PA and these other Arab countries, preventing them from slipping into revolution, then what is it? The answer is simple – poverty.

    Things are pretty good in the Palestinian Authority right now. Disco-techs have opened up, cafes are full of people and jobs are coming in. Bottom line, things are pretty good for the average man on the street in the Palestinian Authority and most of them, having experienced the deprivations under the Intifada, when things were really bad economically, don’t want to rock the boat.

    It Comes Down to Questions of Poverty

    Compare that with the average Egyptian citizen, who is destitute, with no money and no job prospects. A similar situation exists in most other places experiencing massive protests – Yemen is one of the poorest countries on the planet. And while Libya has a higher per capita income rate, it is not high enough to fend off a revolt against their brutal dictator.

    Iran has been spending much of her oil wealth to build bigger and better bombs to show off how they can “wipe the Zionists off the map” while allowing their people to starve, especially with the sanctions the UN has imposed on them.

    Some other Arab nations (Saudi Arabia, Kuwait, etc.) however have the money to keep their people happy and fed, even if they don’t give them the civil rights they really would like to have.

    Why Now

    Okay, so the problem is poverty. But, why now? Why not 5, 10, 15 years ago? What’s changed to make these protests happen? After all, people have been poor in many of these countries for a very long time and there doesn’t seem to be (at least on the surface) much of a reason for the protests to have happened now as opposed to any other time.

    The answer (and the reason that we should be concerned other than morbid curiosity) is food.

    As I said, I live in the Middle East, in Israel. We’re a western, developed nation with a high tech industry which competes directly with Silicon Valley for the creation of startups. In fact, no other country has more startup companies listed on the Nasdaq stock exchange than Israel, except for the United States. However, for all our advances and high tech prowess, I’ve noticed something when I go food shopping.

    High Food Prices

    Six months ago, I could buy a kilo (2.2 pounds) of tomatoes for around 2 shekels (around 60 cents). Occasionally, it would be as little as a single shekel if it was at the end of the day and the store wanted to clear out produce before they closed for the day or the weekend. These days, I go to the same places and the same kilo of tomatoes runs 6 shekels. If I’m lucky, I can find it for 4-5 shekels.

    Now in a Western country like this one, where the average middle class citizen earns around $25,000 annually, we’ll grumble about those higher food prices. But, ultimately, we’ll tighten our belts, maybe go out to the movies a bit less often, and keep buying food.

    Poorer Countries Have a Tough Time Absorbing Higher Prices

    Contrast that with Egypt, where the average middle class citizen earns around $300 a month. They still have to pay the same prices for tomatoes. We both grow them locally and we share a similar water economy meaning that we have similar costs for food.

    However, that middle class Egyptian is suddenly finding that it’s not a matter of not going out to the movies once in a while. It’s a matter of deciding whether to pay the rent or put food on the table for the kids.

    Add in the fact that Egypt as a whole is a very poor country and that they have a large number of people who subsist on as little as $2 a day and you can see where people are suddenly feeling monetary pressures that they never felt before.

    They literally don’t have the money to pay for food and that’s what’s driving these revolutions – when people feel they have their backs against the wall, they do things that they ordinarily wouldn’t do because they simply have nothing left to lose, leading directly to the current Middle East Crisis.

    What This Means for the Economy

    Okay, here’s the payoff: what does this mean for the economy in the United States? I’ve written about this in other places in the past and I believe quite firmly that we could see some price shocks in the United States.

    No, I don’t expect mass protests of the kind we saw here in the Middle East, at least, not over food and not with the intention of completely replacing the government with a new entity entirely.

    However, I do expect that more people are going to go hungry and there is going to be more unemployment in the United States as the price shocks continue to affect the American economy. I also expect that the Tea Party activism we saw during the last election cycle could be just the beginning of a much larger series of demonstrations as the 2012 elections begin to come to the fore.

    As for the economy, ultimately, I feel that this means the dollar is likely to remain quite weak because the Federal Reserve will have no choice but to continue to keep interest rates low and to continue borrowing money to keep the country moving forward.

    What You Can Do to Profit

    When the dollar is weak and problems continue to arise, it’s often best to consider purchasing things which do well in weak economies. Commodities such as gold and silver should appreciate quite rapidly (they already are and I’ve written about this in the past as well). Oil and energy stocks should also see a steady rise in value as these problems continue to fester.

    How Will it All End?

    What will bring us out of this malaise? I don’t know. However, history is definitely not kind on this matter. The last time we experienced a major economic upheaval in the United States, during the Great Depression, it wasn’t really FDR’s New Deal that got us out of the economic malaise we were in. It was the advent of World War II.

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