1979 and Middle-East

“How can you have a war on terrorism when war itself is terrorism?” ― Howard Zinn

Introduction

In 1902 Alfred Mahan is said to have coined or more commonly used the word ‘Middle-East’ to denote to the area between ‘Arabia and India’. This area which previously held significance only as a transit point to India and the Far East, acquired significance with the discovery of oil and its great need in the modern industrial age. Roosevelt sealed the partnership – American security for Saudi oil – in 1945 in a meeting with Ibn Saud in Egypt while the British held their Iranian oil interests through APOC.

While many events like the Israel-Arab war transpired in the Middle-East, it was held largely in status quo by US and Soviet Union. But three key events that occurred 36 years back, in 1979, planted the seeds of wanton destruction and instability we see today:

• Shah left Iran after domestic turmoil and Ayatollah Khomeini took over;
• Soviet invasion of Afghanistan;
• Seizure of the Grand Mosque (Mecca) by extremists, calling for the overthrow of the House of Saud.

We can trace back some of the these underlying tensions further back like for Iran the 1953 coup by the Americans and the British or Sykes-Picot for the divisions of the Middle-East post WW1 or the arrangement between the House of Saud and Al-Shaykh among a few. But I would like to argue that these three unrelated events of 1979 lit the fuse on what has always been a delicately balanced situation.

Then in 1989 came the fall of the Soviet Union which released energy in countries held in balance by the two global superpowers and September 11 attacks on the US which then led to Afghanistan and Iraq attacks. The 9/11 hijackers were 15 Saudis, 2 from UAE, 1 from Egypt and Lebanon.

The Events

First - From 20 November – 4 December 1979, the Al-Masjid al-Haram in Mecca was seized by insurgents led by Al-Otaybi from an influential family in Najd. He sought to declare his brother-in-law Al-Qahtani to be the Mahdi (or redeemer).  They claimed that the House of Saud had lost its legitimacy to govern due to its corrupt and ostentatious ways and its policy of westernization. The government evacuated the Mosque and officially the death toll was 255 pilgrims, troops and insurgents and 560 injured. The state responded not rooting out religious conservatism but by following a more puritanical form of religion – women were banned from newspapers and television, cinemas and music shops were shut, school curriculum was changed and more space was granted to the religious leaders. The coincidence of this with the ‘Jihad” in Afghanistan started increased organized funding for jihadi activities with the state encouraging its citizens to participate in these activities internationally. This spawned multiple generations with extremist beliefs and oil resources to back it. The result can be seen in Bin Laden and 15 of the 19 9/11 attackers were from Saudi Arabia.

Second - The Soviet Union despite its hesitations invaded Afghanistan and that too with inadequate force. This attack caused serious concern in US, Pakistan and Saudi Arabia. The key concern of all parties was the Soviet Union then invading Baluchistan to get to the warm waters of the Indian Ocean and that Soviet bombers were now 30 minutes flying time to the Persian Gulf. The counter action that started was US and Saudi Arabia providing massive financial resources to Pakistan to direct the insurgency in Afghanistan. The Soviets left Afghanistan after 10 brutal years in 1989, sparking a civil war with various countries then jostling for influence. Taliban backed by Saudis and Pakistanis put their government in place only to then changed post the 9/11 attacks by the US. The Soviet invasion ‘terraformed’ the Pakistan-Afghanistan theatre with arms, narcotics, extremist culture, sectarianism and multiple separatist movements which is now gnawing away the Pakistani and Afghan state. This also formed the hot bed for learning of such tactics which have then been replicated in Iraq and Syria.

Third – The Iranian state was taken over by Ayatollah Khomeini in 1979, sparking great fear in Middle-East. Iraq was worried that this might inspire insurgency in its suppressed Shia population as were some of the others like Bahrain and Saudi Arabia. Iraq attacked Iran in September 1980, in a war that lasted 8 long years sapping the strengths of both countries. The between these militarized states helped keep the Middle-Eastern status quo check. The US supposedly provided resources to both parties in the war directly and indirectly. The international community did not against Iraq’s use of chemical weapons against Iran and internally against its Kurdish population. As Iran recovered from the war, the global scenario had changed with the collapse of the Soviet Union. Iran, which runs one of the most sophisticated security apparatus, already had built links with Hezbollah in the Levant and the Syrian regime. But its true opportunity came with the US attack in Iraq. This finally settled the balance of power in Iran’s favor decisively. Iran now exercises influence in Iraq through its Shia majority population, in Syria through its association with the Al-Assad regime, in Bahrain (majority Shia but has a Sunni ruler), Yemen and in Saudi Arabia (Shia population centers are the key oil producing areas)         

Energy and Solar

I had written in November 2014 that a long slump in oil price with change the politics of the region (http://poleconomyindia.blogspot.in/2014/11/hope-and-kiss.html). Decline in global growth and efficiency of consumption had brought stability in demand in major developed markets. Slump in Chinese growth and increasing shale production changed both the pricing and politics of oil. Now given the advances in solar energy comes the next challenge for the Middle East. Saudi Arabia for example budget break-even is $85 (almost 2x the current price of oil) which has the lowest cost of production in the world (55% of its GDP is related to oil). IMF estimates at current rate of spending and oil price Saudi Arabia will run through its financial assets in 5 years. Now some statistics on Solar:

• PV cost is down 200x in the last 40 years (while all energy prices are up….oil, gas etc)
• Solar PV market between 2000 – 2014 has grown at CAGR ~42%
• If the current growth rate continues all energy by 2030 will be solar!!
• Grid parity for 80% of the markets expected by 2017 (Deutsche Bank)
• Cost of rooftop solar may become below cost of transmission by 2020 (some people refer to this as ‘God Parity’!!)

Now imagine what this does to Middle-Eastern energy dependent economies over the next 2 decades! Just as an aside when Saudi Arabia supplies oil to China at $100, the surplus the Saudi Arabia creates it buys machinery (assume from China) both have inputs to nominal GDP at $100. When the price declines now Saudi Arabians have lower surplus and therefore lower ability to buy Chinese goods, China has lower nominal GDP and industrial overcapacity as its customers disappears. Lower nominal GDP growth and deflation has its own implications (which I shall not discuss here) on debt laden economies.

Current and Future State

The region is in a state of complete disarray due to rising intensity of extremist movement like Islamic State which now controls large swaths of Iraq and Syria or Taliban in Afghanistan and Pakistan and second the increasing pressure brought to bear by the Iranians (http://poleconomyindia.blogspot.in/2015/04/re-engaging-ancient-empire.html) across many countries. The authoritarian regimes (e.g. Bahrain, Saudi Arabia) of the Middle-East have long been held together by a system of patronage. This patronage is made possible by the easy revenues of oil. As need for oil and its revenue declines over the next 2-3 decades, the geopolitics of this region is likely to re-frame the political landscape. Over time various artificial states have been created, Syria is just one prime example. Those like Saudi Arabia have been helped by security guarantees from external benefactor (e.g. US). When the rationale for such support disappears, the pressure on the state will multiply manifold. A likely outcome for the Pakistani state in a couple of decades is that it may be reduced to rump state of Punjab as extremism and religious / regional separatism overwhelm the state. The Afghan, Iraq and Syria body count is already estimated in excess of 1 million with no certain estimates and millions displaced. When Europe tore its heart out in the two World Wars, it lost 100 million lives. It is nowhere close but that is the horror we have capability for.  

For most time in history, there were only two consequential powers in the Middle-East, the Ottomans (or power controlling the Asia – Europe Bridge) and the various Persian empires (centered in the location of the current Iranian state) besides external super powers like Britain, French, Russia, US that may intervene from time to time. The Americans did not engage Iran in the nuclear deal out of love but an understanding of the current influence it brings to the table in Iraq and Syria and of the future possibilities. States competing for the same geopolitical space react to one another; the Japanese have started reacting to China, at some point Turks will to the rise of Iran, consequently restoring balance to the region. But these developments take place in decades and till then the seeds of destruction that were sown in 1979 will continue to be reaped.