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Economic (In)security and Economic Integration in the Middle East

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15.05.2019

This is an excerpt from Regional Security in the Middle East: Sectors, Variables and Issues. Get your free copy here.

The Middle East as a region has been marked by colonial and neo-imperial foreign intervention, inter-state conflict, and sectarian violence. Historians and political scientists have demonstrated the importance of the region in terms of its resources and its strategic geopolitical significance for former German, French, and British imperial powers in the nineteenth and twentieth centuries as well as the United States in the twentieth and twenty-first centuries (Vitalis 2002; Mitchell 2013). The events following September 11, 2001, the US invasion of Afghanistan and Iraq, the 2011 Arab Spring, the civil war in Syria, and the rise of the self-proclaimed Islamic State of Iraq and Syria (ISIS) have continued to shape both the international and domestic politics of the nation-states and the regional organisations that make up the Middle East. In addition to the conflicts wreaking havoc in the region, the water-food-energy nexus, social and political developments, and economic challenges have also severely impacted the Middle East. This chapter will explore the challenges this region faces in terms of its economic (in)security. It will first provide an overview of the water, food, and energy challenges facing the region as a whole. It will then examine the region’s attempts at economic integration with a specific focus on the Gulf states in the Arabian Peninsula. Economists James E. Rauch and Scott Kostyshak (2009) divide the Middle East and North Africa economies into three ‘Arab worlds’: the ‘fuel-endowed countries’ (including the Gulf countries, Iraq, Algeria, and Libya), the Arab Mediterranean (Morocco, Tunisia, Egypt, Syria, Jordan, Morocco), and sub-Saharan Africa (including Yemen). This chapter will focus primarily on the ‘fuel-endowed countries’ and those in the Gulf Cooperation Council (GCC): the Gulf monarchies (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates), Iraq, Iran and their attempts at economic integration. This chapter will focus on the GCC because in terms of regional economic integration the Gulf States have been the most successful. At the same time, the transboundary nature of the challenges facing the GCC are an excellent illustration of the lack of regional economic integration and economic insecurity in the Middle East.

As the name of the category would suggest, one of the primary sub-regional commonalities among these ‘fuel-endowed’ countries is the predominance of oil and natural gas exports in their national economies. Indeed, these nation-states, particularly the Gulf kingdoms produce about 20% of the world’s oil and contain 30% of the world’s oil reserves (Gause 2015). Similarities among these nation-states extend not only to their economic dependency on the export of hydrocarbons but also include similar security and development concerns (Murden 2009, 130). The latter sections of this chapter will thus address some of these common developments and security challenges: continuing reliance on hydrocarbons, increasing regional and national inequality, and a growing number of unemployed young adults. In conclusion, this essay will also link the economic insecurity in the region to regional security.

Regional Economic Overview

This chapter will first briefly address the transregional economy of the Middle East and North Africa (MENA). As is well known, the economy of the MENA region is dominated by a reliance on the extraction and export of hydrocarbons. Due to the predominance of oil and gas in several of the economies, especially in the GCC, this region has experienced rapid economic growth. At the same time, this economic growth is dependent – particularly in the GCC countries – on a ‘rentier economy’. This specific economic model is based on government subsidised food, medical services, and energy through the wealth gained by the export of oil and gas (Mckee et al. 2017, 20). Problematically, the continued reliance on the rentier-state model limits the creation of strong domestic industries. In addition, because the government is the primary actor that distributes the rents, the private sector has very little room to thrive (Mckee et al. 2017, 20). The main rentier states and in turn the states with the highest GDP in the MENA region are Saudi Arabia, United Arab Emirates, Kuwait, Iraq, Qatar, Bahrain, Libya, Algeria. The rest of the region is made up of both middle and low-income states, which lack the large hydrocarbon resources found in the ‘fuel-endowed states’ (Mckee et al. 2017).

The regional predominance of the rentier economic model thus also generates a regional inequality among MENA states. According to Alvaredo and Piketty (2014), this high inequality at the regional level can be traced back to high inequality per capita GNP. For example, some of the richest states in terms of GDP per capita belonging to the MENA region, such as Qatar, exist side-by-side with some of the lowest-income states, such as Yemen and Sudan (Alvaredo and Piketty 2014; Mckee et al. 2017, 21). As an illustration of regional inequality, recent research has pointed to the labour market as an illuminating example. Specifically, the movement of young professionals from states like Egypt, Lebanon, Syria, and the Occupied Palestinian Territories to the GCC states in order to fill service jobs in medicine, engineering, education, and business (Mckee et al. 2017, 23). This movement of young people thus limits the potential economic growth of the origin states thereby increasing regional inequality among states. By extension, the movement of young professionals into the higher-paying jobs in the GCC is further exacerbated by the gap between the formal and informal job markets and the reliance on the public sector for job creation (Mckee et al. 2017, 24).

In addition to the above transregional economic challenges, the region also faces increasing insecurity in terms of food, water, and energy. Thus, to further home in on economic problems facing this region and the GCC group, this chapter will now specifically examine the ‘water-food-energy security nexus’ that challenges most of the states within this region.

The Water-Food-Energy Nexus in the Middle East

Before analysing economic (in)security in a specific sub-region in the Middle East, I will first address problems that plague the Middle East region as a whole: namely water, food, energy insecurity, and lack of crucial infrastructure. As food, water, and energy demands remain unmet due to an increasing population, economic growth, and urbanisation, conflict both within and between states become more likely. According to Sullivan (2013), this ‘water-food-energy security nexus’ could drastically affect both food and water security in the future (11). The reasons behind water, food, and energy insecurity are manifold; these problems range from the desert climate to the gross misuse of existing renewable fresh water resources. Climate change and conflict throughout the region also continues to threaten both food and water supplies (UNDP 2011).

An investigation into the land morphology of the region reveals that the region is one of the most arid in the world. Because of this arid desert climate, the region suffers from a lack of rainfall and high evaporation rates. The drier climate impacts both the availability of renewable water resources as well as the production of agricultural products. According to a recent UNESCO report on ‘Water for a Sustainable World’, three countries in the Middle East – Iran, Turkey, and Iraq – contain renewable water resources above 1,000 cubic meters per capita. The renewable water resources in four additional countries – Lebanon, Morocco, Egypt, and Syria – exceed 500 cubic meters but remain below 1,000 cubic meters per person per year. The remaining countries in the MENA region fall below the 500 cubic meter cut-off (WWDR 2015). On top of inadequate renewable surface water resources and weak institutional oversight, a lack of water governance has resulted in increasing water insecurity throughout the region. Newer challenges such as decreasing water quality, water misuse, droughts and floods, climate change, and transboundary conflicts have all added further complexity to an already challenging water situation.

The water-food-energy nexus challenges in the GCC group provide an illuminating example. The Gulf monarchies have very little renewable surface and subsurface water resources. On average, in this sub-region the per capita renewable water resource supply amounts to 92 cubic meters per capita. Kuwait, for example, can only provide seven cubic meters of fresh water per year. Saudi Arabia contains about 874 cubic meters (Aidrous 2014). Yet, due to a surge in population growth and urbanisation, the consumption of fresh water in the Gulf States has spiked dramatically (Aidrous 2014). In response, governments have become reliant on the extraction of non-renewable fresh water from subsurface aquifers and the expensive desalination of sea water to meet demand. The GCC economies now make up almost 50% of the global desalination capacity (World Bank 2017).

While the World Bank does concede that desalination could potentially alleviate some future water shortfalls, it does come with a price (World Bank 2012). The desalination process requires a large energy input, which is largely dependent on fossil fuel consumption. The problem is that as the price of fossil fuels continues to fluctuate, desalination becomes more and more expensive as long as it requires fossil fuels to operate efficiently (World Bank 2012). In fact, a recent article reports that as the populations grow in the GCC states, water will become a more expensive geostrategic resource than oil. One ton of fresh water is already more expensive than a ton of oil (Aidrous 2014). Despite the expense, the price of water in this part of the world is heavily subsidised by the government and there is very little institutional oversight and control over its use. These two factors in turn contribute to the over-consumption and misuse of this scarce resource by wealthy citizens who build private pools, golf courses, and gardens in states like Kuwait. Yet, while government water subsidies primarily help the middle and wealthy classes, people living in poverty in the Gulf sub-region gain little benefit (UNDP 2011). Droughts, for example, primarily affect those populations who live in rural areas beyond water and energy infrastructure and are thus dependent on wells, which can dry up (Sullivan 2013).

Food insecurity in the GCC states reflects a similar disproportionate distribution. It is a distribution that primarily benefits the wealthy and the middle classes but hurts poorer segments of the population. The MENA region is a large food importer in part due to the lack of arable land and declining water supply. While the region continues to see a population boom and thus an increase in demand for food, the local production of food cannot keep up (World Bank 2017). To ensure food security, governments have expanded the production of agricultural crops that consume a large amount of fresh water. Yet while the agricultural sector consumes a large percentage of available water throughout the Arabian Peninsula, in states like Saudi Arabia the agriculture sector only contributes five per cent of GDP but utilises 88% of fresh water resources (Aidrous 2014). The UNDP report argues that this water consumption is ultimately untenable. As the region becomes more dependent on desalination, the local production of food becomes unsustainable (UNDP 2011). Thus, as water becomes scarcer and the price of hydrocarbons continues to fluctuate,........

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