Uncertainty grips Middle Eastern markets

This article originally appeared on The Media Line.

The impact of the Middle East’s ongoing woes on the region’s tourism businesses has been well documented. The industry’s standing has been tarnished not just by continuing conflicts, but also by repeated terrorist attacks against foreign tourists in a number of countries in the region. What has been less discussed is the downturn in the Middle East’s industry, business, and inter-regional commerce.

Syria, the focal point for much of the violence in the region, was described by the World Bank as a “lower middle income country,” with agriculture and petroleum exports making up the bulk of its trade in 2010. Five years later, its economy has been characterized as anywhere between collapsed and as a ‘war economy’. But the country is hardly the only state whose financial position is hugely affected by the sectarian conflict raging in, and across, its borders.

In a research paper for the World Bank published last year, Elena Ianchovichina and Maros Ivanic described how the impact of the war has been felt chiefly by Syria and by Iraq. With stretches of its western provinces captured by the Islamic State, including areas of oil production, it is hardly surprising that Iraq has suffered large scale economic regression. Ianchovichina and Ivanic also discussed a second tier of affected countries — Jordan, Lebanon and Turkey — neighboring Syria and Iraq, who have taken in the bulk of the war’s refugees.

Despite the scale and the length of the conflict the economic repercussions onto global markets have not been large, Jason Tuvey, a Middle East economist at Capital Economics Research Company, told The Media Line. Syria’s economic output was far more relevant to its direct neighbors, Lebanon and Jordan, than to global markets, Tuvey said.

As well as a loss of trade both countries have borne the brunt of Syria’s refugee exodus. Lebanon has taken in so many Syrians that refugees are now 25% of the population and in Jordan the Zaatari refugee camp is so crowded as to constitute the country’s fourth largest city, the economist explained.

Turkey too has taken in large numbers of refugees but is more financially stable than the two smaller host nations.

Whether or not Syria’s reduction in trade has adversely affected the broader Middle East the war is still hampering the region’s economy due to the uncertainty it produces, Colin Foreman, news editor at MEED Middle East Business Intelligence, told The Media Line. Similar to the early years of the Arab Spring – the pro-democracy protests that took place throughout the Middle East in 2011 – the Syrian war creates uncertainty in Middle Eastern markets, Foreman said.

The difference is that in 2011 petroleum prices were stable, so uncertainty actually benefited exporting nations, whereas now the cost of a barrel of oil is low and so the market is more adversely affected, the editor explained.

Conflict in Syria is not the only cause of this situation as political turmoil in Egypt and war in Yemen also add to the uncertainty, Foreman said.

Escalating the uncertainty yet further is the Islamic State (ISIS). “The situation in Syria has deteriorated particularly since mid-2014 with ISIS taking a foothold,” Foreman argued. This has led to the refugee crisis and to a significant downturn in the value of the Iraqi oil industry, the editor suggested.

Tuvey was not as sure that the impact of the Islamic State was felt strongly on Iraqi oil exports. “In Iraq most of its oil fields are in the south away from ISIS – Iraq has actually been increasing its oil production over the last year or so,” he explained.

He went onto suggest the current price of petroleum may be limiting the damage ISIS can cause to global markets.

“It has not had an enormous impact because we’re now in an era when we have a huge glut of oil – ten years ago it might have been more concerning,” he said.