Stock markets across the Arab world experienced unprecedently sharp losses when trading began following the Id al-Fitr holiday earlier this week. The seven stock markets in the oil rich Gulf states shed around $150 billion of their capitalization in the course of the week.
A Saudi trader reacts as he looks at the stock market monitor in Riyadh, Saudi Arabia, this week.
Photo: AP
The market in Saudi Arabia sank by 7 percent. In Egypt, the key index fell by around 16%. One Saudi economist quoted by Agence France Presse described the latest developments as a "catastrophe." For a number of reasons, the Arab world may well prove particularly vulnerable to the world economic downturn. This fact has political implications for the region, which are already being glimpsed and acted upon by various regional forces.
The first and most obvious reason why the Arab world is particularly vulnerable to the financial crisis is that a disproportionately large amount of Arab wealth is invested in global stock markets. Since the 1970s, the Arab world (or parts of it) has enjoyed a long windfall of oil wealth.
Oil wealth is the main source for Arab sovereign wealth funds. Arab sovereign wealth funds, with a combined value of more than $1 trillion, are important investors in what are now being exposed as some of the most vulnerable sectors of global finance.
The Kuwait Investment Authority, for example, placed a $2b. investment in Merrill Lynch last year. At the time, this must have seemed like a secure move. Merrill Lynch, of course, no longer exists.
But the extensive Arab involvement in global stock markets is itself a symptom of a larger malaise. The oil-rich Gulf countries have preferred to use their wealth to build luxurious lives for the lucky few.
Instead of investing in education, especially in cutting-edge fields such as information technology, and in industry, money has been gambled on the stock markets, or invested in glittering real-estate projects, built by foreign labor and using foreign know-how.
The result has been islands of luxury and conspicuous consumption, based on no solid national capital of knowledge and skills. This vulnerability is now being exacerbated by the recent decline in the price of oil - which has fallen nearly 40% in recent months.
This reality has implications not only for the thinly populated, oil-rich Gulf states. The population centers of the Arabic-speaking world, above all Egypt, are also unlikely to remain immune. Development in the Gulf has provided otherwise sparse job opportunities for some of the vast population of under-employed university graduates produced by Egypt.
Large numbers of unskilled and semi-skilled laborers have also found work in the Gulf. But if Gulf economies now draw in, this picture is likely to change. Furthermore, the open tap of foreign aid on which the Egyptian economy has been so reliant may begin to run dry - as the US and other Western economies enter hard times.
Since we are discussing the Middle East, it is appropriate to ask "who benefits" from the current worrying situation. Political commentator Rami Khouri, writing in the Beirut Daily Star, notes that "this is not a situation we can blame on anyone but ourselves." Khouri hopes that the crisis will produce a sobering effect in the politics of the region.
But while it would be comforting to believe that the gravity of the crisis may lead to a sudden outbreak of political maturity, one would be unwise to bet on the prospect. The most notable political response to the financial crisis so far has come from Islamist political circles. The response has taken the form of unabashed glee at America's discomfiture, along with attempts to cast the blame for the situation on that ever reliable stand-by - the Jew.
Thus, Al-Manar, Hizbullah's media station, is currently holding an opinion survey of its viewers, asking them "Do you agree with those who see in the international financial crisis the beginning of the US Empire's fall?"
Unsurprisingly, 84.5% of Al-Manar viewers polled have answered in the positive. The Al-Manar Web site is also running an article under the headline "Jewish Lobby in US to blame for world financial crisis." The article details the statement by Hamas Spokesman Fawzi Barhoum in which he identified the "Jewish lobby" as the body responsible for the creation of the US financial and banking sector, and asserted that it should therefore take the blame for the current situation.
Not to be outdone, the al-Qaida network has released a statement, contending that "The enemies of Islam are facing a crushing defeat, which is beginning to manifest itself in the expanding crisis their economy is experiencing." Such elements identify the crisis as offering great opportunities for growth for their style of politics. They are probably right. Impoverishment, extreme uncertainty, the sense of things in flux are the fuel on which they run.
One should not over-labor historical comparisons, of course, but there are some that are instructive. The Wall Street Crash of 1929 is an imperfect but useful historical example for understanding what is happening now. In 1928, in a central European country, a small, very radical party was humiliated in parliamentary elections, winning only 2.6% of the vote. The same party, in the transformed circumstances following the crash, won 18.3% of the vote in 1930.
The country was Germany, the name of the party was the National Socialist German Workers Party, and the rest of the story is known. Who benefits, indeed.
Dr. Jonathan Spyer is a Senior Research Fellow at the Global Research in International Affairs Center, Herzliya.
