When America sneezes, the rest of the world catches a cold...well, this cold has reached the hot desert of Arabia. The demise of Wall Street has reached the Arabian Sahara and is threatening to put an end to its construction boom, which has flourished from several years of petro-bonanza.
Shortly after Eid al- Fitr, the Holiday marking the end of Ramadan, stock markets across the Arab world experienced unprecedented sharp losses when trading began. The seven stock markets in the oil rich Gulf states shed around $150 billion of their value in less than a week, while oil prices fell five percent to a fresh one-year low just above $82 a barrel on Friday. This prompted OPEC to announce that it will hold an emergency meeting in November; Arabs are in for a crude awakening. This is the first time in three years that oil has not been able to shelter them from the weakness of a global economy.
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, especially on Wall Street. To give you an example, last year the Kuwait Investment Authority invested $2 billion in Merrill Lynch. Of course, Merrill Lynch no longer exists as an independent company!
Just like in the United States and Europe, banks in the Middle East have been cutting their lending rates to avoid an even more catastrophic outcome. But this has not alleviated investors' fears, who continue to flock to the banks and withdraw funds mainly due to rumors of liquidity problems, something that has been denied by the Saudi Arabian Monetary Agency (SAMA).
What worries me though is a backlash of political upheaval engulfing the region. Let's face it, rich sheikhs and their families will not abandon their palaces, but countries like Egypt, the most populous in the Arab world, one which is already struggling with poverty and unemployment, will be severely affected. Many Egyptians depend on monies sent to them by family members working in oil-rich Gulf states. Unfortunately, instead of investing in education, technology, and industry, these countries have preferred to use their wealth to build glittering real-estate projects and will soon be laying off thousands of foreign workers should the economic situation continue to deteriorate. This past spring, rising prices and alleged corruption have sparked clashes at bakeries in poor neighborhoods in Egypt, resulting in several deaths.
Another thing that worries me is the fact that in these dire financial times, extremists in the Middle East will be able to recruit desperate young unemployed Arab youths to target government and Western interests. Al-Qaeda network has already 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." Several commentators on Arab television networks have been blaming the U.S. and the Jewish lobby for the world's financial troubles.
One commentator decried, "you think that 160,000 U.S troops in Iraq is bad...wait until the U.S. sends us 160 of its Wall Street crooks."
Jamal Dajani produces the Mosaic Intelligence Report on Link TV.