Kuwait's Political Machinations Lower U.S. Stocks as War on Gaza Raises Oil Prices

Unlike in Baghdad and Beirut, in Kuwait, there were no widespread protests following Israel's incursion into Gaza, though several hundred gathered Monday in front of the National Assembly to protest the attacks and dozens of banners lined the city's looping highways reading, "Gaza, we are with you."

The organized event, coming a day after the attacks began, exemplifies the country's hesitant, less passionate, though significant support for Palestinians as compared to other Arab countries due to lingering resentment following Yasser Arafat's (the former Palestinian leader) support for Saddam Hussein in 1990 when he invaded Kuwait.

But at the event, Waleed Al Tabtabae, a member of the Muslim Brotherhood and Kuwait's recently dissolved parliament, lifted his shoe above his head as he spoke to the crowd, many of whom wore the Palestinian kaffiyeh, a symbol of Palestinian liberation, in just one of many examples of the war's growing effect on the region's already unstable and teetering governments.

The inability of Arab governments to produce any effective actions as well as America and Britain's stranglehold over the United Nations has allowed Israel to make a desperate situation in Gaza more dangerous while inadvertently raising oil prices and lowering U.S. stocks.

In Kuwait the general mood is somber. In the glitzy shopping malls, some younger Kuwaitis also donned the kaffiyeh before arriving at the malls to do what one does best in Kuwait: shop, eat, gossip and eat some more.

In Salmiya, one of Kuwait's shopping areas, a clothing store for babies named "Young Marines" (featuring a version of the U.S. flag as its logo), is emblematic of the growing mutual dependence of American-Kuwaiti relations and of America's once strong influence in the country.

When Saddam invaded and occupied Kuwait in August of 1990, America, smelling oil and recognizing its geo-strategic location, rescued the country, dismissing Iraqi claims that Kuwait was once a part of Iraq and driving Iraq's despotic leader back north.

Since then, Kuwait has relied on America, Kuwait's largest supplier of goods and services, for security. It has also led efforts to encourage other GCC countries to cooperate with their rescuer from the west. But since America removed Saddam Hussein from power, the need for the U.S. to provide security for Kuwait's sovereignty has probably lessened.

While America's largest military base is currently in Qatar (a GCC member), it is Kuwait that provided the main platform for Operation Iraqi Freedom in 2003, reserving 60% of its total land mass for coalition forces and donating over $350 million in assistance -- basically free fuel for all those fighter jets.

The mutually beneficial relationship has supplied Kuwait with military and defense assistance, including F-18 fighter jets, Patriot Missile Systems and Apache Helicopters. Kuwait could have been, would have been and should have been the American democratic model in the Middle East, instead it is again struggling to keep the same government in power for more than a year, with the cabinet resigning twice this past year and the government having been dissolved by the Emir four times in three short years.

Kuwait has remained a particularly peaceful country since the Gulf War aside from an incident in January 2005 when Kuwait Security Forces were involved in gun battles with domestic extremists that resulted in several deaths. In a region riddled with violence and political instability, Kuwait was a rare reaffirmation for America's pursuit of bringing democracy to the Middle East. But recently, political infighting has marred political and social progress, and in doing so, profoundly hurt America's already ruined reputation.

To put it in tweenage text messaging lingo, America and Kuwait are "BFF."

Ironically, Kuwait's "democracy" is working against them and America. On Sunday Kuwait scrapped a deal for a 17 billion joint venture between state-owned Petrochemicals Industries Co., who were to pay 7.5 billion dollars to form a petrochemicals firm known as K-Dow, and Dow Chemical, an American multinational corporation that is the second largest chemical manufacturer in the world. The dismissal of the deal has caused U.S. stocks to drop, highlighting growing fears about the global economy and ending the first two-day rally in U.S. stocks in several weeks.

Members of Kuwait's parliament pressured the Prime Minister to abandon the deal, arguing that the agreed price, despite having already been lowered once, isn't worth the investment under current economic conditions. Charges of corruption and political infighting as members of parliament try to settle political scores against the former Prime Minister and their foes is an example of Kuwait's growing political ineffectiveness. As with any deal, there is a penalty for backing out. Kuwait may be liable to pay a penalty of up to 2.5 billion dollars, since the venture would have allotted nearly 7 billion dollars for Dow to procure Rohm and Haas. The unexpected pull out from Kuwait, a result of political infighting between the Kuwaiti government and parliament led Standard & Poor to lower its grade for Dow by two scores from "A-" to "BBB," the second-lowest investment grade, indirectly lowering confidence in American markets.

A group of members in Kuwait's parliament threatened to question the prime minister, just as they has last month, which resulted in the resignation of the government. Despite pleas from members of Kuwait's parliament to pursue cooperation between the government (cabinet) and Parliament, the two entities remain largely at odds, blaming each other for the lack of progress in various sectors of the economy.

For a long time Kuwait was viewed as the pioneer of progressive democracy and governance in the Middle East until the first unconstitutional dissolution of the government in 1976 when the parliament was dissolved by the Emir of Kuwait who reserves the right to dissolve the parliament at his will, but according to the constitution, he must call for elections within two months.

By suspending the article in the constitution that stipulates the need to call for new elections, without a parliament, his government was acting as both the legislative and executive branch, without any political oversight.

So what does Kuwait ditching the joint venture have to do with Israel's incursion into Gaza, and why should Americans care?

If the crisis in Gaza escalates there is likely to be a widening support for Hamas among extremists across the Arab world (the opposite result of Israel's intentions). In Kuwait for example, the representation of religious extremists are increasing in number and influence, making the previously unlikely attack on oil facilities or oil transportation in the Gulf a dreaded probability.

The assumption here and rationale for interrupting the distribution and production of oil follows the extremist logic that oil-producing countries like Kuwait are using their wealth to appease American interests. Any attack on the distribution of oil would be justified as a punishment for America and the West for allowing Israel to continue their disproportionate attacks by increasing the price of oil. Ironically, Gulf states such as Saudia Arabia and Kuwait have been lowering production hoping to raise the price of oil themselves.

Without any attacks on oil supplies, Israel's intensified attacks on Gaza themselves are already sending oil prices rising, reaching nearly $40 a barrel today. As the American dollar declines and bombs drop on Gaza, the likeliness of regional countries becoming drawn into the conflict are mounting.

Israel's intransigent bombardment on Gaza comes at a time of general political instability in the Middle East, raising the likeliness of a more direct and dreaded confrontation between Iran, Israel and America. As angry and worried as many Arabs are about the destruction in Gaza, the more feared danger will be realized if Iran gets involved. Iran's president told the Arab League today that it must act quickly to end the attacks, urging them to do more than raucous rhetoric and political preparations. In Iran (like many cities around the world) students are protesting regularly outside the Egyptian Mission and Jordanian Embassy, with several groups writing letters to the Jordanian ambassador and head of the Egyption mission threatening to try to expel them from the country.

Israel's steady willingness to continue to risk the entire region's stability despite widespread protests and strong condemnation from within Israel and internationally suggests that oil prices will continue to rise, U.S. interests in the Middle East will continue to be compromised and American allies in the region, specifically the Gulf, will struggle more with growing internal pressures from groups such as the Muslim Brotherhood who hope to capitalize on the outrage sweeping across the Middle East.

These implacable assaults are only encouraging Hamas, known for its blind defiance, to continue sending rockets haphazardly towards Israel as the rest of the world prepares to send fireworks exploding through the sky for a spectacular show, to celebrate the end of another year, though sadly not the end of the same old story.