The West’s response to the unrest in the Middle East has been fascinating. While the US has adopted a policy of “Assisted Democracy” in the last few years it has been noticeably reserved when it comes to the sudden, unexpected spread of democracy across the Arab world. The UK Coalition government with its apparent policy of pleasing everybody all of the time was quick to the Prime Minister on a tour of the emerging democracies in the Middle East. Stabilising the region and building new relationships being a key priority for the UK government. The worldwide response to the Humanitarian disaster in Japan has been more consistent. The sheer level of destruction and the scale of the crisis in the worlds’ third largest economy have shocked individuals and governments alike. As Japan reels from the disaster and attempts to stop its vital nuclear industry going into meltdown, many are wondering what the next financial year holds in store for the financial markets.
If it has as many surprises as the closing financial year, the markets could be joining the Japanese nuclear industry in meltdown. Economic recovery and the stability of the markets are looking distinctly under threat, economists have already stated that until the situation in Libya is resolved oil prices will remain volatile and continue to rise. This inevitably will slow recovery in the highly developed western world, where high fuel prices are already causing deep concern. The UN has now effectively sanctioned war against Libya, which may bring a speedy conclusion to the situation but damage to the country’s oil industry and infrastructure will still continue to affect the price of oil. As to the rest of the Middle East – a UN backed military removal of Gaddafi will send a clear signal to other would-be democracies, including countries like Saudi Arabia, not known for its open and honest approach to government. The future may be bright, but that is quite possibly because a lot of things will be on fire.
What Good News?
It seems harsh to speculate on the effects of these humanitarian disasters in financial terms, yet the recovery of the financial markets is essential for these regions if they are to build new futures. One rather unpleasant parallel could be drawn. It was the wholesale destruction of German infrastructure during the Second World War that allowed Germany to rebuild itself into a modern, successful and strong economy. If this is the pattern that emerges in the coming months in the Far and Middle East, it is possible that some good may yet come out of the present crises. It is a simple fact that whoever is running the Middle East in twelve months’ time will want, if not need, to sell oil to the West. It seems impossible to work out who that will be, but even if every dictator in region is toppled and replaced by pro-Islamic governments as in Iran, oil will be crucial to rebuild their economies and make a success of their reformed nations.
In the Far East, re-construction in Japan may also have beneficial effects in the market. The country will need to make some decisions as to the future of its nuclear industry which is crucial to providing for its energy needs. Whatever this decision is, the investment needed to rebuild or replace its energy generation capacity will be massive, providing opportunities for those investing in the financial markets. The level of government and international investment in Japan may indeed stimulate the Japanese economy that has been stagnating for so long.