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Over the last couple of years the world’s media has been dominated by the Arab Spring. First Tunisia, then Libya, then Egypt, and finally throughout much of North African & the Middle East, the “Arab Street” has been expressing its discontent. Demonstrations, riots, and in some cases revolution and civil war have become the norm. The governments of Tunisia, Libya, & Egypt have all fallen. Governments in Morocco, Algeria, Jordan, and even Saudi Arabia have offered concessions to their citizens. And of course, Syria remains in a state of war today.

Arab Spring

Many media sources attribute this revolutionary spirit to the quest for dignity by oppressed peoples, and it is certainly true that if you travel around North Africa and the Middle East you will regularly hear similar sentiments. There are grievances. But why now? Why not 5 or even 10 years ago?

For some time I have had a theory that high oil prices and post-crash Quantitative Easing in the US and Western world led to the Arab Spring occurring today.

Sound crazy? Well, it all boils down to food prices, and like all commodities, the price of wheat, maize, and rice are affected by the global economy. The Arab world has for some time had all the ingredients for a powder keg of revolution. All it needed was a spark. The spark was hunger. The cause of that hunger was the rising cost of wheat.

So yesterday I decided to stop arm waving, and took a look in a little bit more detail at the data. Could my hunch be supported? In the end I think the story is perhaps a bit more nuanced, but let’s go through it…

The Powder Keg

The Middle East and North Africa has been politically messy for decades. A suite of low to middle income countries stretching from the Atlantic, through the Mediterranean, to the Persian gulf and beyond, ruled over by a mix of dictators, monarchies, and the occasional democracy. Corruption is in many countries a simple fact of life. Failed institutions abound. Economies are listless and life is hard.  Political dissent is not tolerated. And throughout this the western world has turned a blind eye as we support and pursue our own geopolitical strategic objectives. The Arab Street has little to point at and be prideful except their own deep sense of dignity, and that has been under attack for a while.

Demographics matter. North Africa and the Middle East are young.

From continent to continent and across race and religion, the “demographic” of insurgency, ethnic conflict, terrorism, and state-sponsored
violence holds constant. The vast majority of recruits are young men, most of them out of school and out of work. It is a formula that hardly varies, whether in the scattered hideouts of Al Qaeda, on the backstreets
of Baghdad or Port-au-Prince, or in the rugged mountains of Macedonia, Chechnya, Afghanistan, or eastern Colombia.
—Richard Cincotta

The population of the Middle East has quadrupled in the last 60 years. Indeed, the modern population of Egypt alone has 20 million more people than the entire Middle East in 1950. Much of the growth is recent. Egypt’s population has almost doubled since 1980, from 45 million to 81 million people. Today, 54% of Egyptians are less than 24 years old. Twenty million of these are of “fighting age”, between 15 and 24.  Yemen’s population has almost tripled since 1980.

To further compound the tinder,  youth unemployment in North Africa and the Middle East is high. In Egypt it is estimated to be over 30%, not counting the under-employed. That is a lot of idle, young, male, aggrieved hands.

But until recently these idle, fighting-age, hands lacked coherence and direction.

What changed?

The Trigger

One recent key change in the standard of living in North Africa and the Middle East has been the price of food. It may sound surprising, but this is a huge deal.

The average American spends between 5 and 10% of their household income on food, depending on which source you believe. Sure, people will gripe if prices rise, they may even cut back on other items, but they’ll not starve. However, in 2007 the average Egyptian spent between 40 and 50% of their household income on food. Wheat prices increased rapidly though 2008, and again from the middle of 2010. If you spend 40% of your salary on food, and the cost of bread doubles, what future do you see? What have you got to lose?

average income spent on food

On the 17th December 2010, Mohamed Bouazizi, a struggling Tunisian street vendor set himself on fire in protest at the confiscation of his wares and the harassment and humiliation that he had reported. His death marked the start of the Arab Spring.

What do you do when you can no longer feed your family?

The first, most clearly illustrated, point is that global spot wheat prices have a broad correlation with global spot oil prices. This is for a number of reasons (potentially including financial speculation) but clearly crops require oil-based fertilisers to grow, mechanised farming to reap, and trucks to transport to market. All of these costs increase as the cost of oil increases.

oil vs wheat spot price

As the image above shows, the price of wheat broadly mirrored the increase in oil prices during the 2005-2008 period. A previous post has already outlined a possible relationship between high, rapidly increasing, oil prices, the recent financial collapse, and quantitative easing. It seems that this also applies to food prices, and eventually to the Arab Spring.

The spike in oil prices from 2005 to 2008 is broadly co-incident with wheat prices, with a fall off in both after the collapse of Lehman. Food riots occurred across Africa and the Middle East during this spike.

If, subsequent to the collapse of Lehman and the near failure of the global financial system, quantitative easing did provide free money to banks and speculators, and this supported and even increased the price of oil (even whilst OPEC had spare capacity), then the same mechanism appears to have also affected the global wheat market.

Wheat prices did not drop as fast as oil prices in early 2009, and the start of quantitative easing did not produce an immediate bounce in prices as it did in oil. However, a couple of price spikes appear to correlate with QE1, and easing may have had an affect on the rate of decline. However, subsequent to the drought in Russia during the summer of 2010 wheat prices began to accelerate upwards again, further stressing an already stressed population. It’s correlative (although cause is hard to define) that the second round of quantitative easing was at the same time as rapidly increasing wheat prices and may have exacerbated this trend. Throughout the second half of 2010, as wheat prices regained their 2007 levels, food riots occurred in Algeria, Egypt, & Libya. Prices of bread rapidly increased, a stressed population was put under yet more, almost existential, pressure.

The Libyan day of rage was in February 2011. 

So did high oil prices (caused by demand approaching total available supply) & financial speculation in the US, followed by quantitative easing deployed by western Central Banks to alleviate the collapse of financial system drive oil and wheat prices post 2009?

Did cheap money and expensive oil provide the trigger for the Arab Spring?

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2 thoughts on “Oil, Base Rates, Food, and the Arab Spring…

  1. Pingback: Syrian Oil, and… what caused the war? | The View from the Mountain

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