By Max Clarke
Business Monitor International has revealed a special report recently launched on its website that looks at the key risks to global recovery and stability following the crisis in the Middle East and North Africa.
The report states that the wave of popular protests that have swept across the Middle East and North Africa (MENA) since January 2011 constitutes the biggest shake-up to the region for at least a generation, and its impact will be felt for many years to come. The unrest also poses the biggest risk to the global economic recovery this year, not least because of its effects on the oil and gas industry with the price of oil continuing to increase.
Although rising inflation has fuelled discontent, the protests are being driven by more fundamental issues, such as a lack of democracy, high unemployment and poor opportunities for social advancement.
Business Monitor International deemed Algeria, Bahrain, Iran, and Yemen to be most at risk of further unrest, although the company emphasises that virtually no state will be completely immune to public protests.
Egypt will remain in a delicate transition to democracy, and if the people's hopes are dashed, further protests could erupt. In Bahrain, the growing demands of the Shi'a majority could transform the polity, with major implications for Saudi Arabia, which fears unrest among its own Shi'a minority in the oil-rich Eastern Province.
Libya's descent into civil war represents the most immediate risk to the region and Europe. The country's oil supplies are of key significance to the EU, but southern European countries also fear a massive influx of refugees from the country. In addition, chaos and lawlessness in Libya could allow Islamist extremists to establish a greater presence in the country.
More broadly, the crisis in MENA has served notice to authoritarian regimes around the world that they are not immune from popular uprisings. Governments in Venezuela, Belarus, several African countries, Central Asia, North Korea, Myanmar, and even China will become ever more vigilant to the possibility of public unrest.
As far as global financial markets are concerned, the combination of supply-side risks to oil and massive political uncertainty in a strategically important region is bad news for risk trades. Business Monitor International's global macro team has modelled a 'worst-case scenario' in which oil prices spike to US$200/bbl. The company's special report also reveals that Asia's economic growth is particularly vulnerable to high oil prices, because most countries in the region import more than 90% of their oil needs.
European economies are also likely to be hit by high oil prices the company reveals, and policymakers in the continent will also be wary of the security risks of Libya's descent into chaos. However, one relative beneficiary is likely to be Russia. Although there are several Russian oil firms with stakes in the Libyan oil market, high oil prices are generally positive for the Russian economy, provided that any price surge does not tip the global economy back into recession.
For Latin America, higher oil prices are a double-edged sword with Venezuela, Mexico and Colombia likely to see higher exports, but oil importers such as Chile and Peru could be major losers.
The impact of higher oil prices on sub-Saharan African (SSA) economies will vary widely. Production is concentrated in Nigeria, Angola and Sudan, with most other nations being net importers. Measuring the impact of these commodities increasing in individual economies is also complicated by the fact that many countries are exporters of crude and importers of refined oil (or vice versa), not to mention that various governments will have in place different policies on subsidies at the pump.