Could anyone have predicted the political storm that in just a few short weeks has shaken the Arab world and knocked down some of its most diehard leaders like kings on a chess board, overpowered by undervalued pawns?
After months of upheaval, the winds of change have swept across North Africa to the oil-rich Persian Gulf, sending oil prices rising even further to levels that at least one prescient analyst says could lead to stagflation and another global economic crisis.
Nouriel Roubini, who was virtually alone among the world's economic pundits to foresee the financial catastrophe that struck in 2008 and led to the global economic meltdown, said in an article published March 17 that the political turmoil in the Middle East carried powerful economic and financial implications for the world at large.
Higher oil prices, he said, increased the risk of stagflation, "a lethal combination of slowing growth and sharply rising inflation."
He added: "Indeed, should stagflation emerge, there is a serious risk of a double-dip recession for a global economy that has barely emerged from its worst crisis in decades."
Roubini pointed out that the Middle East has historically been a source of oil price spikes, which in turn triggered three of the last five global recessions.
Oil prices also played a role in the finance-driven global recession of 2008, he said, noting that oil prices by the summer of 2008 had doubled over the previous 12 months to a peak of $148/barrel "delivering the coup de grace to an already frail and struggling global economy buffeted by financial shocks."
The turmoil that has toppled the leaders of Egypt and Tunisia since the start of 2011 and has now wreaked havoc in Libya while shaking the regimes of Yemen and Bahrain may yet be contained or recede, sending prices back to more normal levels, Roubini said.
Meanwhile, oil prices have risen to their highest levels since September 2008, North Sea Brent already rising above $100/b as the Middle East risk factor kicked in at the start of the year and climbing further towards $120/b last month.
US light crude oil futures, which averaged $62.11/b and $79.6/b in 2009 and 2010 respectively, closed at $101.42/b on March 18.
So far, the only significant oil producer to have had its production virtually shut down by violence is Libya, and Saudi Arabia, the OPEC giant, has stepped in to make up for the shortfall, ramping up output to 9 million b/d and still holding back 3.5 million b/d of capacity that can be brought on line if necessary.
With the onus on Saudi Arabia as the only oil producer with sufficient spare capacity to make up for any potential disruption of supply, be it as a result of political revolution or natural causes, the entry of Saudi troops to help restore peace to neighboring Bahrain has been a game changer and risks drawing Riyadh into a proxy conflict with regional Shi'ite power Iran.
Roubini said there was a "serious chance that the uprisings will spread, destabilizing Bahrain, Algeria, Oman, Jordan, Yemen and eventually even Saudi Arabia."
Indeed Saudi Arabia's Shi'ite minority has already been stirred into action by what some opposition leaders in the kingdom consider as an intervention in Bahrain targeted against the Shi'ite majority population in the strategic island state that is key to the security of the Persian Gulf's oil route.
"If oil prices rise much further, towards the peaks of 2008, the advanced economies will slow sharply; many might even slip back into recession. And even if prices remain at current levels for most of the year, global growth and inflation will rise," said Roubini.
Given that his previous prophecy came true, the Middle East's oil producers and their leaders may want to pay heed.
To subscribe or visit go to: http://www.platts.com
