The Global Impact of Unrest in the Middle East

Social and Political unrest across the Middle East and North Africa has amplified uncertainty in global markets and set a new obstacle for the continuing global recovery in the form of sharply higher oil prices. This paper offers the perspectives of “Wellington Management” analysts on the short- and long-term consequences of the recent turmoil and resulting market volatility.

The authors underscore that the effects of political unrest go beyond regional and developed/developing market boundaries, and their expectations in the short term are that: 

• the economic impact of transition will be negative, with higher fiscal deficits and lower tourism and investment
• there will be an impact on stock performance in emerging markets that reflects the ties that different countries and companies have to the areas in turmoil
• the threat of disruption to energy production in the region will continue to exert pressure on energy prices, and across the emerging markets, elevated oil prices will complicate the battle against inflation
• Middle Eastern government savings rates will fall and the cost of capital will go up globally as a result
• in this context, the deep redistributive fiscal policies, implied by the coming political competition, will result in much lower government saving
  

However, the authors state that it is difficult to generalise about the outlook for the region as a whole, as each country faces a very specific set of circumstances. Yet, their views in the long term include: 

• political upheaval and regime change in the Middle East could cause a paradigmatic shift in the way energy resources are priced and supplied on a global basis
• assuming that a country like Egypt transitions to a more open system, it will lead to new business formation and more integration and growth in the region as a whole