Spotlight on… Middle East
Egypt’s rising food prices spark talk of protest
Sisi’s attempts at economic revitalization have run up against rising inflation and surging food prices. Egypt devalued its currency in March and increased customs duties, hoping to revitalize its domestic industry. The country is now finding it harder to import products. The difficulty of importing goods combined with increased black market activity have translated to higher food prices. The military has started to sell confiscated products at regulated prices.
The rising prices have sparked calls for protest and revolt. The revolt, called “The Revolution of the Poor” is scheduled for November 11th and currently has over 100,000 followers on its Facebook page. To preempt the possible revolt, a number of businesses are lowering prices and encouraging their industry peers to do the same.
Whether or not the planned protest is serious, the economic woes are. Sisi Administration’s attempts to revitalize the economy have floundered, a concerning blow to a regime that came to power promising a flourishing economy. Further, as the military sells confiscated goods, it is competing with local sellers that do not have the benefit of state funding. It thus further exacerbates the problem as local shops close.
The response by businesses may not help either. By lowering prices, businesses are also lowering taxes received by the government which could put the money into infrastructure projects to boost growth, as the Egyptian government often has. Further, many of the businesses are not food sellers, but other industries such as electronics, a market segment tangential to the current crisis. Combined with higher oil prices due to a political rift with Saudi Arabia and political turmoil to the west in Libya and to the east in the Sinai, a recession caused by rising food prices could derail the Egyptian economy.
Could Libya derail an OPEC Deal?
How will General Hifter’s control of Libyan oil ports affect a new OPEC deal? While the Libyan Government of National Accord (GNA) continues infighting and the war against ISIS, General Hifter and his Libyan National Army (LNA) are looking towards the future. Having seized control of Libya’s major oil ports, Hifter has renewed the export of oil under Libya’s National Oil Corporation (NOC). Exports have risen from 260,000 barrels a day to 450,000 in a month. The fact that the NOC is controlled by the Government of National Accord is irrelevant: Hifter controls the ports and the oil. Control gives Hifter a number of benefits. It increases his popularity in a country that craves stability and peace. It gives him a tremendous bargaining power over the GNA in political compromises: the Libyan Prime Minister has said that the LNA should be included in any new government. It also gives Hifter a perfect position from which to grow his control over Libyan territory, population, and governance. With support from Egypt and Russia, Hifter seems primed to expand his control over Libya.
Yet increased oil exports bring an international complication. With continued low prices hurting oil producers’ economies, Saudi Arabia and Iraq have signaled their desire to arrange a deal for all OPEC states to cut oil production to raise prices. The Libyan GNA has demanded the right to continue raising production. Renewed oil flows out of Libya and government and foreign investment in its oil infrastructure shows that any Libyan government would have no interest in cutting production.
Even though sticking to an OPEC deal would be unlikely, the Saudis and Iraqis need to invest political capital in a deal. If they can indeed get one, it benefits their economies. But more important is the need to keep OPEC relevant in an oil market that is shifting from the paradigm of the 70s and 80s. Unless Hifter and the GNA can reach an internal deal, it is unlikely that Libya will support an OPEC deal, which will influence the Saudis and Iraqis to unilaterally cut oil production. This would do little to raise prices enough to benefit their economies and could open the way for more Libyan or Iranian oil to fill the gap.
Yemen’s influence on trade
Almost four million barrels of oil pass through the Bab el-Mandab Strait a day. Located at the southwestern corner of Yemen, a disruption of oil transports here could cause unpredictable fluctuations in the oil price. Yemen’s continuing war could play a spoiler role.
In October, a United Arab Emirates ship, two US warships, and a private LNG carrier were attacked.The UAE and the US blamed the Houthi rebels for the attack (the rebels did in fact claim responsibility for the attack on the UAE ship).The United States retaliated by attacking Houthi’s radar stations.
As more weapons pour into Yemen and as the war reaches new levels of violence, the possibility that either side will escalate to attack shipping to hurt the economic prospects of the other increases. Further, the chances of weapons falling into the hands of third parties, such as Al-Qaeda, also rises. If any faction decides to begin retaliating against external actors, or if Al-Qaeda decides to further internationalize the war, shipments could prove an easy and valuable target.
Such risk could have far reaching impacts. Egypt’s weakened economy relies on trade through the Red Sea. The UAE has invested heavily in East African ports that could suffer reduced inflows due to the new risk. More broadly, the Strait is the fourth largest oil “chokepoint.” Increased risk here could lead to rising oil prices worldwide.
About Zachary Torrey
Zachary Torrey is a postgraduate student at LSE in the MSc Conflict Studies program. I focus on insurgency and counterinsurgency and the effects that government reactions to insurgencies have on the wider political economy of their respective regions.
