Middle East Unrest and Its Impact on World Trade

Topics: Middle East, North Africa, Israel Pages: 7 (2891 words) Published: December 28, 2012
Middle East Unrest and Its Impact on World Trade

Middle East Unrest:
Middle East unrest or The Arab Spring is basically a term given to The Arab Revolution. It is a revolutionary wave of demonstration, protests and wars taking place in the Arab world that began in the late 2010. To date, rulers have been dethroned from power Tunisia, Egypt, Libya and Yemen. Civil uprisings have manifested in Bahrain and Syria, major protests have taken place in Algeria, Iraq, Jordan, Kuwait, Morocco and Sudan. Instability in the Middle East is obviously nothing new, and while turmoil in nations such as Egypt, Bahrain, Iran, Libya, Algeria, and Yemen may set back those economies, a slowdown in regional growth is unlikely to spread elsewhere. The roughly two dozen countries that make up the Middle East and North Africa region—MENA, to economists—account for only about $2.5 trillion in GDP, combined. That's one-fifth the size of the U.S. economy and barely 3 percent of world output. But because this region is abundant with natural resources without which life today is unimaginable- the Middle east unrest does concern everyone out there and especially parties related to trade. Relationship between regional unrest and world trade:

World trade in general can be affected by world events such as war and civil unrest. The influences can be direct and indirect, and they often occur in chain reactions. The social uncertainty and fear generated by the unrest in the Middle East countries affected markets directly as they caused many investors in many countries to trade less and to focus on stocks and bonds with less risk. An example of an indirect influence on markets is the announcement of a new military venture by a country in response to the outbreak of civil unrest or conflict abroad. This announcement likely would cause the price of the stocks of military equipment and weapons manufacturers to rise due to an expected increase in defense contracts, which in turn can raise the value of stocks for companies that supply military equipment parts and technology. It likely would raise the demand for, and price of, natural resources used to make these parts, which would raise the price of stocks representing particular mining and natural resource processing companies. Examples of such occurrences will be given as we continue. Middle East and its role in world oil:

The importance of the Middle East oil resource base is exceptional, in quantitative as well as in economic terms. The region’s role as supplier is of crucial significance for the world oil market. Those who control this resource wealth have a considerable power to manage the market, to the detriment of consumers. The users of oil also suffer from the supple disruptions that have repeatedly resulted from the long lasting political instability characterizing the region. Political unrest in the Middle East has contributed to higher oil prices and added instability to energy markets. Supply disruptions and fears about the possible spread of unrest to major exporters have pushed prices higher. Even if the crisis abates, some risk premium may persist to the degree that market participants fear such an event could occur again. The price of oil is already indicating to us that the current turmoil in the Middle East will not be resolved in the short term. Prices of most major grades of oil spiked last week after tensions heightened in Libya and, although they've retreated a bit, they remain volatile. Further to this point, there is a chart below outlining the highest closing price in February going back the last 15-years. Typically, February would be a relatively slower seasonal month for demand in the United States (the world's largest consumer) as the need for winter heating oil diminishes and summer driving season hasn't picked up. Interestingly, while the price of oil is still more than $40 from its all time high, it is very close to highest February close of $101.78 in February 2008. This...
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