ANALYSIS: Economic situation of the Middle East continues to be complicated

Michael Flanagan
Michael Flanagan - Special to Al Arabiya English
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The economic situation of the nations of the Middle East continues to be a driving force on local relations and relations with the United States and the West generally.

This week, Iranian President Hassan Rouhani announced the Iranian budget for the coming year. While framing the severe restrictions and privations as a response to the United States’ renewed sanctions, these privations better reflect the collapsing Iranian economy which is geared more for international intervention rather than toward national investment and stability.

The total 2019 budget for Iran will be 74.5 billion of USD equivalent, which is less than one half of the 2018 budget. Rouhani accused the Americans of brutalizing the common Iranian with the sanctions.

This is to off-set the encouragement that President Trump and many influential Americans personally provide the Iranian resistance. It won’t work but is a sign of desperation we have seen used by despots through recent history like Saddam’s Iraq, North Korea and Venezuela.

ANALYSIS: Closely bound to Tehran, Basra is aflame, again

In addition to the restrictive budget numbers, the inflation rate in Iran is further choking the life out of the Iranian economy and currency. Starting this year at the unbelievably low of 42,000 Iranian rials to the dollar, the Iranian rial ended the year at about 100,000 rials to the dollar. This downward spiral will not be able to continue much longer without complete collapse resulting.

To offset the 100 percent devaluation of the currency in 2018, the Iranian government announced a 20 percent increase in government salaries across the board. It is something but nowhere what is needed to offset the inflation spiral the Iranian economy is in currently.

Last, even this bleak outlook is based on the unrealistic goal of Iran selling 1.5 million barrels of oil a day for $54.00 per barrel. Iran will be able to sell some legally and smuggle other supplies but the goal of 1.5 million barrels a day let alone at that price is overly optimistic by most estimations. Oil sales make up over a third of the Iranian government revenues.

Things in Turkey are not improving either. The inflationary devaluation of the Turkish lira is making privation for the most Western of the Middle East’s economies. The people of Turkey have less experience with the economic difficulties often suffered in other Middle East countries. President Erdogan is in a tight political place and knows it.

Inflation in Turkey is at about 21 percent. In response to this, Turkey promised to raise the government salaries 26 percent in 2018 to off-set the loss of buying power and rising prices. This did not happen and President Erdogan is taking considerable heat from the failure to keep this promise.

Workers at the Kuwait Global Steel Services factory in Kuwait City on December 5, 2018. (AFP)
Workers at the Kuwait Global Steel Services factory in Kuwait City on December 5, 2018. (AFP)

Saudi Arabia remains stable but is running annual deficits now and will reach a structured national debt of over $100 billion this year. Much of this debt can be attributed to the costs its on-going struggles abroad including Yemen and its efforts to keep the price of oil lower than otherwise might be.

As for Iraq, the problems in Basra and Baghdad continue. Also, the ongoing friction with the Kurds and their status in Iraq continues to be a major topic of national concern. The new government plans 10,000 new government jobs in Basra to alleviate the privations there.

This promise has been made before and one can only hope that the new government will deliver. Friction with Iraq’s neighbors continues to dominate its foreign policy but, surprisingly, among the economies in the Middle East region, Iraq is among the most stable and healthiest.

Fractured Syria

Syria continues to be a fractured and broken economic state. The Damascus economy is based in a tiny fraction of Syria’s former capabilities. Its economy is fractured and dominated by various groups and not by Damascus. For example, Syria’s entire allocation of oil sales are offered by the Syrian Kurds alone which does not contribute to the economy in Damascus at all.

One could argue that starving Assad of resources and money is a good thing but the on-going fractured economy will become harder and harder to eventually heal and reunify when the time comes.

Expecting the Kurds to voluntarily surrender oil sales to a new government in Damascus (or worse, the old government newly constituted) may prove to be a bridge too far. A united Syria is becoming a more and more distant reality.

ANALYSIS: Is Iran’s time in Iraq coming to an end?

Propped-up by the Russians and Iranians (while they can), the Assad regime claims control of Syria but that is illusory. One thing is for sure, the United States will not be actively protecting or reconstructing Syria as it did in Iraq.

As the American withdrawal is imminent, there is a possibility of renewed violence and even greater instability in Syria. The US government believes that with the defeat of ISIS, the American role is accomplished and we should leave. This is new for us, but many support this position on both the left and the right. We shall see how this works out in 2019.

Personally, I supported Obama’s withdrawal from Iraq and I support this withdrawal from Syria as well. Obama failed when he refused to return to Iraq to fight the ISIS invasion as promised. I hope Trump will be willing to return if it becomes necessary but, for now, leaving is the best idea. We shall see.

Michael Patrick Flanagan represented the 5th District of Illinois in the historic 104th Congress. He sat on the Committees on the Judiciary, Government Reform and Oversight, and Veterans’ Affairs. Prior to his Congressional Service, Michael was commissioned in the United States Army Field Artillery. After leaving Congress, Michael and his firm, Flanagan Consulting LLC, have represented both large and small corporations, organizations, and associations. In 2009, Michael took a sabbatical from his lobbying business and entered public service again with the United States Department of State in Iraq as the Senior Rule of Law Advisor on the Maysan Provincial Reconstruction Team (PRT) in Maysan, Iraq. For his work, Michael was awarded the Man of the Year by the Iraqi Courts, the Civilian Service Medal by the US Army and was also given the Individual Distinguished Honor Award. Michael is currently a consultant in Washington, D.C. His email ID is [email protected].

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