U.S. Interests in Peril as Youth Rebel, Leaders Quit in Mideast
Egyptian President Hosni Mubarak. Photographer: -/AFP/Getty Images
Feb. 3 (Bloomberg) -- Ken Moelis, the former UBS AG investment banking president who founded and now heads Moelis & Co., discusses U.S. corporate relationships in Egypt and the Middle East. Moelis, speaking with Erik Schatzker and Deirdre Bolton on Bloomberg Television's "InsideTrack," also discusses the outlook for merger and acquisition activity, executive confidence in the U.S. economy and his business strategy. (Source: Bloomberg)
Political upheaval among stalwart U.S. allies in the Arab world may have irrevocably altered politics in the volatile, oil-rich Middle East, Obama administration officials say. While they did not foresee the fast-changing events and can’t predict where spreading unrest will end, they insist they are keenly aware of the dangers.
Longtime Yemeni President Ali Abdullah Saleh yesterday followed Egyptian President Hosni Mubarak in responding to street protests by pledging not to seek reelection. The day before, Jordanian King Abdullah sacked his prime minister following demonstrations and promised “genuine political reform.” Last month, a revolt in Tunisia forced President Zine El Abidine Ben Ali into exile.
“The Middle East may never be what it was” prior to the last 10 days, “and what it will be is yet to be determined,” White House Chief of Staff William Daley said in an interview at the Bloomberg Breakfast in Washington yesterday.
A challenge for U.S. policy as popular protests sweep the Middle East and North Africa is how to back away from leaders who have lost their people’s trust without appearing to be a fair-weather ally or encouraging instability or the rise of anti-American leaders in their place.
The U.S. will have to maneuver more deftly, analysts say, to forge alliances with new governments to protect U.S. interests: security for Israel, sustainability of world energy supply and the fight against al-Qaeda and other terrorist groups.
Gaming Possibilities
U.S. officials say that while they may not have predicted the fast-changing events in the Mideast, they are gaming out all possibilities.
“We are planning for a full range of scenarios,” White House spokesman Robert Gibbs said yesterday. “It is hard to even imagine several days ago the events that happened yesterday. And so events across this landscape are happening very quickly. We’re watching those events. We’re planning for those events.”
Officials are sticking to President Barack Obama’s insistence that the new leadership of Egypt is a matter for the Egyptian people. “We do not have a favorite candidate or candidates. We are not going to anoint any successor to President Mubarak. These are decisions to be made by the Egyptian people,” said State Department spokesman Philip J. Crowley.
‘Ten Steps Behind’
Outside the administration, many analysts have criticized the White House for being behind the curve. They are “ten steps behind not just Egypt’s events, but the radically changing dynamics of the entire region -- the fact that the region’s youth population is defining its future in defiant and unprecedented and unexpected ways,” said Dina Guirguis, an Egyptian-American human rights activist and fellow at the Washington Institute for Near East Policy.
“We are witnessing the end of the old Middle East,” said Khalil al-Anani, a Middle East analyst at the University of Birmingham in England. “Now, the people have the upper hand over regimes.”
In Egypt, where Mubarak, 82, has been a dependable U.S. ally for 30 years, the White House will need “a delicate touch” to “ensure that a successor government is neither virulently anti-American nor openly hostile to Israel,” said Stephen M. Walt, a professor at Harvard University’s Kennedy School of Government in Cambridge, Massachusetts. Egypt is the fourth-largest recipient of U.S. aid, after Afghanistan, Pakistan and Israel, according to the State Department’s 2011 budget, receiving more than $1.5 billion a year.
“We should be quietly advising other leaders in the region to take steps to alleviate discontent” and “avoid the same fate that Mubarak is now experiencing,” Walt said.
Markets Respond
Markets have so far taken the regional unrest in stride. Persian Gulf shares surged after Mubarak’s statement and the DFM General Index surged 3.3 percent yesterday, the most since April.
Crude oil was little changed near its highest price in more than two years on concern that protests in Egypt may threaten exports from the Middle East. About 2.5 percent of global oil production moves through Egypt via the Suez Canal and the adjacent Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc. The waterway carries more than 2.2 million barrels of oil a day.
With oil above $90 a barrel, it has been business as usual for Persian Gulf exporters regardless of the uprisings rocking other Arab nations.
Meeting Demands
In Egypt, Yemen and other countries without the oil wealth of Gulf states, there may be no one who can deliver what protesters want -- jobs, lower prices and better standard of living, said Edward S. Walker, a former U.S. ambassador to both Israel and Egypt.
It’s very difficult to see how democracy alone can solve the protesters’ problems, Walker said. “It doesn’t create jobs, it doesn’t lower the price of food” or eliminate the gap between rich and poor.
“Most regimes are not addressing the underlying tough issues and are doing superficial things -- and very poorly in most cases,” said Rami Khouri, director of the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut. “There is absolutely no doubt that every single Arab country, without exception, is watching the events, concerned about the implications for their own countries.”
In Egypt, the most populous Arab nation, the economic growth rate has dropped below the 7 percent the government estimates is necessary to create enough jobs for a growing working-age population. The official inflation rate last dipped below 10 percent in August 2009.
Economic Impact
Yemen, for its part, faces serious water shortages, declining oil output and a society where more than half the population of 23 million is under 20 years old. About 40 percent of Yemen’s population, which is expected to almost double by 2030 to 40 million, lives on less than $2 a day.
Saleh said he would raise the salaries of the armed forces and security forces by 5,000 Yemeni rials ($23) a month, the state-owned Saba news agency reported Jan. 22, after more than a week of protests.
“Yemenis have even more grievances than people in Egypt and Tunisia,” said Gregory Johnsen, a Yemen scholar at Princeton University in New Jersey. “The real concern for the Yemeni regime is if all of these different strands of opposition sort of coalesce into a single narrative that just is focused on President Saleh, and if that happens the regime is in a lot of trouble.”
‘Failed State’
Foreign Policy magazine and the Fund for Peace ranked Yemen 15th of 60 countries on their 2010 Failed States Index, saying only Afghanistan, Iraq and Pakistan are in worse shape among nations in Asia and the Middle East.
The Yemeni government is battling a secessionist movement in the south and a Shiite uprising in the north.
Al-Qaeda’s Yemeni-based wing has launched cross-border attacks on Saudi Arabia, the world’s largest oil exporter and holder of one-fifth of global reserves. In August 2009, it tried to assassinate the top Saudi anti-terrorism official, Prince Muhammad bin Nayef bin Abdulaziz. The group was also responsible for sending two parcel bombs to U.S. synagogues in October.
Ahead of Situation
In Syria, where street protests and social networking websites are banned, economic progress has been slow. Syria ranks 140 out of 179 countries in 2011 in terms of economic freedom, according to the Heritage Foundation, a public policy center in Washington.
President Bashar al-Assad, 45, doubled the heating allowance for state workers, the official Syrian Arab News Agency reported Jan. 16. The government spent more than 140 billion Syrian pounds ($3 billion) to subsidize prices for home heating oil and other petroleum products last year, 10 times more than what was spent in 2009, Ath Thawra newspaper reported Jan. 3.
The government also plans to provide between 500 pounds and 3,500 pounds a month to low-income families, Al-Watan newspaper reported two days later.
“He has promised political reforms in the past,” Josh Landis, director of the Center for Middle East Studies at the University of Oklahoma, said of Assad. “The hard truth is that Syria has a rapidly growing population, a bad education system, too little water -- and world food prices are going up rapidly.”
Jordan Responds
In Jordan, the government announced an increase in public salaries and subsidies to counter protests over falling living standards. The package includes a 20-dinar ($28) monthly increase for state employees and pensioners, which will cost the treasury 160 million dinars a year, Petra news agency reported Jan. 21, citing then-Prime Minister Samir Rifai.
Jordan’s regime is less at risk than in Egypt and Yemen, because King Abdullah is a popular leader who holds the allegiance of many tribes and can trace his lineage back to the prophet Mohammed, Walker said.
An additional 140 million dinars will be spent on subsidies for natural gas and livestock feed, Petra said. Rifai, 44, was dismissed yesterday after a little over a year in power.
King Abdullah, 49, told new premier Marouf Bakhit that he should put the country on the path “to strengthen democracy,” and provide Jordanians with the “dignified life they deserve,” the Royal Court said in an e-mailed statement.
Saudi Arabia Acts
The 86-year-old king of Saudi Arabia, also King Abdullah, has backed the Egyptian government and condemned the protesters, while trying to address imbalances in the largest Arab economy. The government announced in August a $385 billion, five-year spending plan as the kingdom tries to reduce a jobless rate of as high as 43 percent for Saudis between the ages of 20 and 24. Saudi Arabia is the world’s largest oil exporter.
“We are today in a new Arab world,” said Mohammed al- Qahtan, head of the political department of Islamic Reform Party in Yemen. “The young Arabs of today are the generation of the Internet and satellite television and are seeing what is happening around the world.”
“The pace of change will not be the same everywhere, but there will be change across the board,” said Khalid al-Dakhil, Saudi columnist at the London-based pan-Arab newspaper Al-Hayat. “People want genuine, real reforms, not cosmetic changes. These regimes have proven that they are incapable of reform, so they have to go.”
“Arab Gulf monarchies which have wealth and no strong opposition may have the leisure of changing gradually, without undermining their regimes, but they have to be serious about it or they will eventually meet the fate of Mubarak,” added al- Dakhil, a former political science professor at King Saud University in Riyadh.
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