Middle East Enigma. Managing Political and Economic Risks on the Ground

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Notes on Zug Commodity Association (ZCA) evening event, 24 March 2015

“Middle East Enigma: Managing Political and Economic Risks on the Ground – A Hundred Years’ War.”

Dr. Rolf Tanner, polecor

Good evening, ladies and gentlemen.

I would like to open my presentation tonight with a little fable. The fable was told to me about 20 years ago by Dr. Michael Burrell, then a Middle East scholar at the London School of Oriental and African Studies (SOAS), on the occasion of some commiserating about the seeming fact that spoilers apparently always have the upper hand in the region when it comes to the matters of peace and war.

The fable goes as following:

A frog and a scorpion want to cross the Suez Canal. For the frog, this of course isn’t a problem as he knows how to swim. For the scorpion, however, this is a problem because he doesn’t know how to swim. So he asks the frog: “Can you give me a lift, buddy? I need to get to the other side.” The frog shirks and says: “Why should I do that? You are a malicious animal, and you are going to sting me as soon as you are on my back.” The scorpion responds: “Come on, why should I do that? It would be really stupid because when I am stinging you while swimming, we are both going to drown.” The frog thinks for a moment: ‘Mmmh, that’s true. Why should he do that?’ So he turns around and says to the scorpion:”OK, fine, get on my back, I bring you to the other side.” The scorpion crawls on the back of the frog, the frog gets into the water and starts swimming. But when they are in the middle of the Suez Canal, the scorpion stings the frog. The frog, knowing he is going to die, turns around and asks with his last breath before drowning: “WHY have you done this??” The scorpion only responds: “Remember – we are in the Middle East!”

A story of irrational behaviour and senseless violence. And unfortunately, when we listen to the news coming out of the Middle East on an almost daily basis, we are very often confronted with such senseless violence and completely irrational behaviour.

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The Middle East remains one of the planet’s major conflict arenas. It is among the highest military spenders. While global defence expenditures have been declining or only notching up slightly over the last three years, they have continued to grow by more than 10 % in the Middle East. Among the 15 countries with the highest defence expenditures in relations to GDP, more than half are from the Middle East.

Conversely, when we look at the Index of Failed States, put together annually by the Fund Peace, Middle East and African countries predominante. This may look paradoxical as some of these states simultaneously have high military expenditures. But the Index of Failed States indicates how well the state serves its citizens across the board with government services - schools, hospitals, infrastructure. In many Middle Eastern states, the military is the only state institutions that works. All the rest is either inexistent, or just barely existing.

If the Middle East were negligible to, say, the global economy, you could argue, from a cynical perspective, that the region’s plight and drama matter little to outsiders. But apart from the humanitarian concerns we all should have for the poor human rights record and human tragedies that engulf the region, the Middle East is of course of particular geo-economic relevance. It holds half of the planet’s proved oil reserves. The picture does not change much when we add tar sands in Canada and Venezuela. And the picture isn’t too different either when we look at world gas reserves. Oil and gas remain in many respects the lubricants of the global economy, especially also in Asia, which has become the growth engine of the global economy regardless the current Chinese slowdown. Political risk thus hangs like a Damocles’ Sword over the global supply of oil and gas.

Why is the Middle East so conflict-prone? What are the roots of all these wars, revolutions and instabilities?

I am a historian by training, so when trying to understand complex and complicated matters, I often refer to their historical genesis. This of course doesn’t necessarily provide an answer how to deal with the situation going forward, or to forecast how things will develop in the future as there is ofen no such thing as linear continuity. Still, I find history usually a useful method to understand, as much as possible, what happened and what are the causes of what we see as effects today.

In many respects, what the Middle East is in today can be compared to a hundred year’s war. And unfortunately, like the real Hundred Years’ War between the kingdoms of France and England in the Middle Ages, this hundred years’ war is likely to last for more than exactly a hundred years.

It is about 100 years ago that a cluster of event occurred that shaped the Middle East profoundly and initiated some of the continuities which are at play still today.

A century ago, much of what we call the Middle East today was still part of the Turkish Ottoman Empire. Egypt was a de facto British protectorate since 1882 though it was nominally still an Ottoman province. Also much of the southern rim of the Arabian peninsula and the sheikhdoms of the Persian Gulf were under British control. The inner parts of the Arabian peninsula were a collection of tribal confederations, with the house of Saud, the current rulers of the kingdom of Saudi Arabia, already in the ascent. Iran finally, or as it was called back then Persia, was nominally independent, but under pressure from both Tsarist Russia in the North and Britain in the East and South. For the British, the expansion into Arabia and Persia were part of their larger effort to secure and defend their Indian Empire.

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In 1907 – so 108 years ago -, the British and the Russian formally divided Persia into zones of influence. And it was in the British zone of influence, near the city of Abadan, that oil was discovered in 1909 – 106 years ago. This was an important discovery as the Royal Navy, the most powerful navy back then, was just shifting from coal to oil firing. The discovery near Abadan allowed the Royal Navy greater autonomy in its oil supply. The discovery of oil also stands at the beginning of the region’s role as the global oil reservoir.

In 1914 – 101 years ago -, the First World War broke out. It pitted the Central Powers, with Germany, Austria-Hungary, Bulgaria and the Ottoman Empire, against the Allies, i.e., France, Britan and Russia. In order to prevail against the Turks in the Middle East, the British instigated the Arab tribes to raise against their Ottoman rulers, making them to believe that after the war they would gain independence. Yet, behind the scenes, the British were already dividing up the loot with the French: Mr. Sykes and Monsieur Picot, a British and French diplomat, negotiated the respective agreement in 1916. You can see this on the bottom part of the map on this slide, with the greenish parts going to France and the greyish parts to Britain. This programmed a collision course between European colonial aspirations and the promise of independence to the Arabs.

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