Corporate Debt Review

The Rise of Arab Spring II

Stability in Doubt

Our meeting last weekend at Windsor Castle outside London reinforced a view becoming widely shared. Arab Spring is returning and this time it will be much worse.

In the fifteen years of this annual consultation the opinions shared have always provided an early indicator of what is coming. Little wonder, given the high-profile energy analysts and policy makers attending.

As I noted in the last ECRG Intel, proceedings at Windsor are governed by the Chatham House Rule. This allows for all to use what transpires provided that no name is attached to any opinion or any mention is made of who attended. In practice, the Rule allows for frank and wide-ranging discussions, punctuated by occasionally pointed disagreements.  Having done this for fifteen years also facilitates the exchange among figures who now each other well.

This year the fascination was initially addressed to the rise of populism following Brexit and Trump, further advanced by the current political developments in France, the Netherlands, and even Germany.

But the mood turned decidedly somber when the conversation turned to contributions by ambassadors from most of the MENA (Middle East North Africa) countries. Their concerted position was direct – it is not a question of whether the Arab Spring will rise again, but when.

And from the indications already present, this time the insurrections will include two elements missing from the first round: a Sunni/Shiite division as a main central ingredient; and a lack of huge oil revenue surpluses to buy off populations with domestic social programs.

This time, it will get nasty.

As several participants observed, the coincidence of falling economic prospects in all MENA countries combined with an intensification of religiously-inspired conflict (Yemen, Bahrain, Iraq, Syria) carries the prospect of protracted duress directed toward sitting rulers.

Some of this is hardly new. But the extension of possible conflict to nations previously thought immune (Jordan the prime example in this respect, with some concern also addressed for Algeria and even Morocco) combined with the enlargement of unrest in already destabilized places like Libya and Syria points toward a wave of internal pressure spreading across the region.

Worse Than Last Time

In my private conversations with several of the ambassadors, the picture was hardly better. The collision of population increases (MENA remains the area of the world with the highest birth rates), declining internal market and employment prospects, and a reliance on exporting oil with prices still almost half what they were when the first Arab Spring hit makes the environment ripe for unrest.

Most of the regimes are led by non-elected hereditary rulers, and there has been little contact between ruling family and the population. When the rulers comprise a Sunni minority while the ruled are a Shiite majority – much like the situation in Bahrain – it becomes a formula for revolution.

Bahrain is a promontory jutting out into the Persian Gulf, connected via causeway to Saudi Arabia’s only Shiite dominant province (where most of Saudi oil is produced). Iran has been playing the Shiite card for years here, fomenting unrest in the Saudi backyard.

During the initial Arab Spring, Riyadh did not wait for matters to get out of hand. At the first sign of Iranian-inspired disturbances, Saudi forces quickly marched across the causeway and took over control of Bahraini security. There is a salient precedent for this preemptive move.

When the Iranian Shiite revolution unfolded in 1979, the Shiites in the Eastern Province also rose up. That required the Saudis to put down their own population by force of arms.

This time the fear that similar images will emerge is filtering across the region. The ability to buy off the opposition becomes immeasurably more difficult when the unrest is fueled by religious differences over a millennium old, and unleashed in a demonstrably weaker economic environment.

Also, factions have been watching populism play out in the West. There, popular disaffection has lashed out at the “establishment” in both Brexit and the Trump election without serious regard for what happens after one breaks the pottery. What has been quickly absorbed is the ability to harness hatred for the here and now.

As one quite well-known senior emissary put it to me over coffee: “Unless we are all very careful, much of MENA will end up looking like Syria.

Snowball Recipe – One Part Fear, One Part Oil

This is not the first time a conversation at the Windsor consultation has presaged developments. Our meeting at the castle in early March 2010 predicted the first Arab Spring. That one began in Tunisia less than nine months later.

What makes it different in 2017 is the widespread appreciation for what another period of unrest could do. The concerns I addressed were met with agreement by others, including the Russians (who in past meetings at Windsor and elsewhere have been far more circumspect in their views).

Dr. Moors walking the Windsor Castle grounds w/Russian Ambassador Alexander Yakovenko


Armed insurrections crossing national borders would have a chilling effect on oil prices and the stability of the broader global energy sector. Similarly, an attempt to close the narrow Strait of Hormuz between the Persian Gulf and the Gulf of Oman (opening into the Arabian Sea) has the potential to add $20-40 to a barrel of oil within the span of a few hours.

Yet the unrest need not reach that level for the impact to be felt by both prices and markets. What those intent on undermining the current state of affairs have learned is far subtler. Uncertainty alone, if stretched out over a longer period, can have just about the same result.

Traders tend not to operate well if they cannot predict the future (or at least have a reasonable confidence that they can). Eroding the confidence in energy availability can be just as effective as cutting that availability altogether.

What transpired in my Frankfurt meeting two weeks ago may be the most telling development of all. My discussions were with the Iranians, who expressed the same concerns noted at Windsor by others from the region.

Like a snowball pushed down a hill. At a certain point it has its own trajectory and is likely to run over anybody – including those who may have had a hand in starting it off to begin with.

About the Author


Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment.

He serves as an advisor to the highest levels of 27 countries, including the U.S., Russian, Kazakh, Chinese, Iraqi, and Kurdish governments, to the governors of several U.S. states, and to the premiers of two Canadian provinces. He’s served as a consultant to private companies, financial institutions and law firms in 29 countries, and has appeared more than 2,300 times as a featured radio-and-television commentator. He appears regularly on ABC, BBC, Bloomberg TV, CBS, CNBC, CNN, NBC, Russian RTV, and the Fox Business Network.

A prolific writer and lecturer, his six books, more than 2,700 professional and market publications, and over 650 private/public sector presentations and workshops have appeared in 47 countries.