Overview
The continuous bad news about the Middle East is enough to discourage investment. Value investors realize this is the moment to purchase. If you look at Yemen, Syria, or Iraq, you may think the Middle East is trapped in persistent violence and structural issues. Outsiders who don’t wholly comprehend its nations or peoples ignore the Middle East’s intricacies.
The U.S. government, U.S. corporations, and U.S. investors should consider the region’s potential to rival Europe as a marketplace for goods and services, the role the area plays in keeping energy prices stable and reasonable and counterbalancing steps international competitors like China are taking to expand influence in the region, and the fact that security without economic prosperity is meaningless.
An expanding U.S. market
Middle East countries range in richness from Yemen to Qatar. It has the world’s most oil and gas. It has four of the ten most significant sovereign wealth funds, and it’s a top-10 U.S. treasury holder. The Middle East should also be viewed through an economic lens for all these reasons.
The Middle East isn’t as economically crucial to the U.S. as Europe is now. A Middle East revolution might place it on a level with Europe regarding U.S. economic relationship. Europe’s GDP contribution to the global economy is 15.6%, nearly twice its population.
The Middle East has 6% of the world population but 4.6% of the world GDP. Growth is possible. Coca-Cola, Amazon, and Uber have made significant purchases based on this investing philosophy. Blackstone, Carlyle, Blackrock, Goldman Sachs, and other investment banks and hedge funds have made billions from sovereign wealth funds, family offices, and HNWIs. Cartier, LVMH, Hermes, Richmond, and Rolex have invested in Middle East markets. Total, ExxonMobil, Shell, and B.P. have substantial regional contracts. Boeing, Airbus, Lockheed Martin, Bechtel, Halliburton, and others do well in aerospace, security, and infrastructure. Twitter, Facebook, Amazon, and Apple have benefited from the Middle East’s mobile marketplaces.
Stable oil prices are vital to the U.S. economy
The future of the U.S. economy will depend on global energy costs. Despite the hype about renewable energy and energy conservation, demand is steady, and 80% of the world’s power comes from fossil fuels. The U.S. shale business is a supply success but volatile. Oil price swings have caused a boom-and-bust cycle similar to the aviation sector. The Saudi-Russia oil price stalemate in April caused the current fall. A spate of bankruptcies and bond downgrades has slowed the industry, boosting unemployment. Despite popular belief, low prices are a bust for the U.S. energy business.
OPEC may not control pricing anymore, but it still has power. OPEC+ agreements with Russia and Mexico have extended its influence. The Group of Twenty, Brazil, Norway, and Canada, agreed to oil output limits during the April OPEC+ summit. Joining this informal club would balance the oil market.
The Middle East will remain vital to U.S. energy policy. The Middle East’s large oil reserves and extraction costs assist balance global energy markets and maintaining a fair price.
Global stability depends on balancing China
China fills U.S. disengagement or neglect voids. The UAE’s second-largest commercial relationship, and the recent nuclear agreement with Saudi Arabia is only the beginning. China’s Belt and Road Initiative and Saudi Vision 2030 drive greater economic convergence.
China and other Asian countries buy most OPEC energy. Given the initiatives above and links, China inevitably wants more significant economic ties with GCC nations. If the U.S. continues to limit its Middle East participation, China will gain influence. OPEC would consider Chinese interests during the next oil crisis if China extends its economic ties. U.S. backing for Middle Eastern countries helps offset China’s expanding economic might, which has absorbed Asia and Africa and is knocking on Europe’s door.
Economic growth undermines security
Teenage hopelessness is hazardous. Arab Spring 2011 ignited this explosive cocktail. The desire for change may have lost steam but simmers in many Middle Eastern countries. Even though most Middle Eastern regimes are autocratic, there is pressure to keep responsive to the people’s demands.
- As the social compact between rulers and citizens evolves, a productive population will be crucial to stability. While political reform is uncertain, economic reform to reduce unemployment and boost prosperity is prioritized.
- The U.S. should facilitate the Middle East’s shift from state largesse to private sector development.
- Entrepreneurship, regional economic integration, educational change, women’s economic engagement, and supporting innovation lead to economic development and employment creation.
Security must be prioritized, but not over economic growth. Lack of economic diversity is as harmful as non-state and state security concerns in the area.
Better prospects
The pandemic offers a chance to construct more dynamic and adaptable economies. The U.S. and its allies can improve the Middle East’s future with regional stakeholders.
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