Arab Spring Economy

The Arab Spring: An Economic Perspective

Revolutions and uprisings in the Middle East have a deep economic underpinning. Unemployment, poverty, stagnant growth and low economic opportunities, these are the crises at the heart of the Arab Spring. While political corruption have been the centerfold for discussion in the media, the intensity of the Middle East’s economic repression have largely been put aside. What needs to be discussed however is precisely this backwards-developmental cycle that is preventing Arab states from realizing independence from its natural resources.

The Middle East is home to the largest oil reserves in the world. Growing economies are constantly thirsty for oil so Arab States have naturally profited handsomely off of worldwide oil consumption. However, while some states have used their money to diversify homegrown industries, others have left regions of their countries undeveloped

The oil industry has always been historically volatile. However, certain OPEC countries still depend heavily on their oil and natural gas resources, some government even nationalized the industry. This cycle is hugely unsustainable. If the demand for oil suddenly drops, economies will collapse purely because there is a substantially lack of diversification.

Figure 2 compares the historical sensitivity of oil compared to the relative stability of gold. We see that the price of oil has an exaggerated reaction to market forces, while gold underreacts. Inevitably this means high returns during a market boom, but staggering illiquidity in the event of recession. It is dangerous for any country to depend so heavily on oil.

It is important to note that the current economic restructuring of India and China have largely contributed to the increase in the demand for oil. OPEC countries have been lulled into a sense of security, which allows them to regularly feed off their oil and gas resources. Governments who haven’t already nationalized their oil...