Economics and Middle Eastern conflicts

Experts on the Soviet Union used to examine everything except its economy. They were subsequently surprised when economic dysfunction caused the empire’s demise. Similarly, today, economic factors are largely ignored in current analyses of developments in Iran, the Arab Spring and the Arab-Israeli conflict. Disregarding economic history and dynamics leads to a misapprehension of the region’s challenges, and how best to cope with them.

Few ask why Iran’s mullahs are spending so much of their oil income, which they desperately need to feed an impoverished population, on their nuclear project; why are they inviting painful sanctions and risking a military assault? The answers might provide a clue to Iran’s strategy.

The mullahs are spending a fortune and taking high risks with their atomic project, primarily because a Shi’ite Iran seeks world domination.

“The Iranian revolution is not exclusively that of Iran,” Ayatollah Khomeini averred, “because Islam does not belong to any particular people. We will export our revolution throughout the world, because it is an Islamic revolution.”

Besides constantly spreading its revolution through terror and other means, Iran must feed nearly 60 million people who cannot survive without welfare and subsidies. On assuming power Ayatollah Khomeini slapped price controls on agricultural products to reward his lower-class supporters, the Bazareens. He destroyed Iran’s once-prosperous agricultural sector.

Millions of farmers migrated to shanty towns around major cities. Welfare was allocated based on family size, so the birthrate skyrocketed, doubling Iran’s population to over 80 million.

Because it is sustained by income from oil, the regime’s survival depends on high oil prices. Iran has been investing $200 million a year in Hezbollah and Hamas not to kill a few dozen Jews, but to ensure that when the price of oil slumps, threats of war can drive it up again.

The mullahs are also seeking nuclear weapons as a deterrent, to secure Iran’s ability to control the price of oil.

Possessing the bomb, Iran could block the Straits of Hormuz, cutting off oil shipments from the Gulf – the source of the lion’s share of world consumption – until it receives a “transit fee” on every barrel passing through what it considers its territorial waters. This would eventually transfer so much European wealth to Iran that in a few years Iran could dominate Europe without firing a shot.

If anyone challenged Iran’s blockade, it could launch a terror campaign involving chemical or biological weapons or dirty bombs. It could also threaten to incinerate the Saudi and Iraqi oil fields, bringing the world’s economy to a halt.

Iran would most likely ratchet up its toll gradually, by, say, a mere $5 per barrel. Would Europe or the US go to war with a nuclear Iran over an incremental $5 rise in the toll? Once it controlled the flow of oil, Iran could depose the Saudi regime, the hated guardian of Sunni Islam. It could engineer coups by Shi’ites who are a majority in Saudi’s oil-producing provinces, and capture Mecca and Medina.

After unifying Islam under the Shi’a banner, a nuclear Iran could dictate terms to an impotent West.

It could eradicate the Little Satan – an isolated, emasculated Israel – with little risk. It could also proceed with its jihadist mission to establish Shari’a rule worldwide.

If Iran is not stopped now, it may be impossible to stop it later. By effectively cutting Iran’s oil exports and bankrupting the regime it may not be necessary to attack its nuclear facilities.

As for the Arab Spring: little attention has been paid to how Egypt’s Islamic heritage and its socialist past and statist present have shaped the current crisis.

Neither the rage that united the young, who defied Mubarak’s dictatorship in Tahrir Square, nor the Islamic Brotherhood’s takeover of the government in defiance of the generals, nor how the Arab spring may unfold can be correctly assessed without understanding Egypt’s economic history and dynamics and how they interacted with religious, cultural and political factors.

In order to keep their impoverished citizens pacified, Arab rulers – including the young officers who deposed King Farouk of Egypt in 1952, copied post-WWII welfare regimes. They nationalized their economies and strangled them with huge autocratic bureaucracies that totally subjected the economy to politics, breeding inefficiency, waste, cronyism and corruption.

Arab as well as African states, most notably Egypt, that under colonial rule was relatively prosperous, have become destitute because the socialist and statist systems they adopted created dysfunctional economies and governments that were eventually overthrown by military juntas.

By enabling the poor to have larger families, welfare also created a demographic bubble that led to massive unemployment. The many children who did not reach productive maturity drained scarce family resources.

Unemployable youngsters roamed the streets, ready to riot, increasing insecurity and discontent.

SINCE MUBARAK’S presidency, Egypt’s population has doubled. About 40 percent of Egyptians are dirt-poor fellahin, farmers (in the West, only 3.5% of people work in agriculture). Tradition encouraged them to sire many children to secure free labor and old-age support.

Consequently, about 50% of the population is under the age of 25, compared with 32% in Germany and 37% in France. Officially, unemployment in Muslim states is close to 10%, but it is probably much higher among youth.

Even during the past decade, when Egypt’s economy improved and fertility dropped, massive unemployment and make-work projects hindered economic development.

Income from oil, or vast amounts of foreign aid (which were funneled through corrupt elites that squandered or stole much of them) and Cold War politics sustained these repressive dictatorships.

Heavy taxation, choking bureaucracy and cronyism gradually decimated a small Egyptian middle class, the engine of economic progress. Civil society practically disappeared. An ever restive “street,” manned by unemployable “students,” was fertile ground for incessant incitement by Islamic imams, by radicals of all stripes and by a jingoistic press. Labor unions kept promoting radical socialist ideas, absorbed when Egypt was practically a Soviet satellite and its elites were trained in Moscow.

The intellectual elites – academics, the media, writers, lawyers, etc., and their associations became captive to radical elements – Islamists, jingoists and communists.

The “street” became an erratic and feared political wild card. With no countervailing classical liberal tradition in the Muslim world, there was nothing to resist radicalization.

The blessings inherited from colonial rule – functioning health, educational, legal and transportation systems – degenerated. Growing discontent was brutally suppressed by security services that were originally led and instructed by Communist East Germany.

Islamic insistence on complete obedience to the ruler legitimized political, social and personal repression.

High inflation made marriage unaffordable. It harmed especially women and the sexually repressed young, who could not marry until well into their thirties if at all, creating an emotional powder keg ready to explode politically, as it eventually did in Tahrir Square.

Without profound social and economic changes, Muslim rage will keep feeding unrest and rebellion.

The Muslim Brotherhood takeover in Egypt may repress, for a while, internal strife, but it will probably result in worse crises, especially economic, in the future.

The story of the putative Arab spring is only beginning to unfold. If we keep ignoring the economic elements involved in the revolt, it may be difficult to address correctly the challenge posed by Islamic radicals who have proven to be most adept at exploiting popular rage and directing it to foreign adventures, such as a war of attrition with Israel.

The most impressive demonstration of the positive force of economics was offered by the remarkable “peace process” between Israelis and Palestinian Arabs that took place from 1967, when Israel ejected Jordan from its illegal occupation of the West Bank, until the 1987 first intifada.

While not officially recognized as such because it was not a political process but an economically driven development, this informal peace process saw an amazing, albeit partial, reconciliation between the two peoples. Tens of thousands of Israelis shopped and ate in formerly extremely hostile Arab towns and hundreds of thousands of Palestinians Arabs were gainfully employed in Israel learning skills and attitudes that had a great positive impact on their society.

This spontaneous process, initiated by General Moshe Dayan’s policy of minimal interference in internal Arab affairs, created a mutually beneficial exchange between Israel’s developed economy hungry for less costly labor and the Palestinian poor and labor-intensive economy.

The Palestinians’ standard of living quadrupled. Trade and small manufacture flourished. Agriculture was modernized and made productive. Health and education were greatly improved, as was the status of women, children and the lower classes.

Despite the great success of this non-political process, a messianic peace camp in Israel and the Palestinian Liberation Organization were one in insisting on a political solution leading to Palestinian statehood. This despite the certainty that such a state would be an irredentist and repressive state, like most other Arab countries.

Israeli leaders made a pact with the devil Arafat.

They foolishly established the terrorist PLO as the sole representative of the Palestinians, gave it a territory and a population to rule, money to function and even guns.

Upon assuming power, Arafat immediately sabotaged all economic relations with Israel. He preferred that his people live in poverty so that he could recruit their frustration and anger as a weapon against Israel.

Thus a great opportunity for a real peace between peoples was missed and replaced by a conflict-prone political process. It is leading nowhere except to greater division and war.

Let us not forget that it was not politics that brought an end to centuries of the worst-ever bloodshed among Christian European nations, but the defeat of violent regimes followed by a gradual economic union. It apparently made people realize that economic cooperation is preferable to military conflict.

There is no reason why a similar process cannot take place in the Middle East if politicians will not hinder the natural cooperation that economic exchange generates.