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Comment: Asia feels impact as Middle East awakens

Updated On: Feb 25, 2011

Does the ongoing turmoil in the Middle East matter for Asia? In this week's lead comment, Simon Tay argues that the unfolding events have already affected Asia through rising oil prices and the concern that the movement could spread across continents. Though major East Asian countries should weather a contagion effect, problems for Asia extend into the medium-term. Whatever comes next after "revolution" will have powerful implications.

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This comment was featured in TODAY (Singapore) newspaper on 25 Feb 2011, and also in the South China Morning Post on 1 Mar 2011.

Thailand has sent ships to Libya to bring home workers affected by the disorder and violence there. China has taken precautionary steps to limit the Internet and quell smaller protests in some cities. Across Asia, stock markets have tumbled as oil prices rise, and companies with exposure to business in the Middle East have been especially affected.

The unfolding events in the Middle East have already affected Asia, and more impacts are possible. One key factor is that Asian economies depend heavily on the Middle East for oil and gas. The unforeseen and unprecedented events make Asians especially nervous as they are price takers. The key determinants are not what Asians do, but how these movements evolve among the Arabs and what the United States does in response.

The immediate analysis depends on the speed and scale of the revolutionary movements which some call an "Arab Awakening". If it stops at Tunisia, Egypt and perhaps one or two more, the effects on Asia may be relatively contained. But if the revolutionary movement continues at the current pace, the Gulf countries and even Saudi Arabia may be affected. Such events would have much wider and deeper implications.

For this reason, even more than Libya, what happens in Bahrain will be watched very carefully. Bahrain is a monarchy and a Gulf state. The response to mix concessions to protesters with police action will be watched by other countries to see if it can be more effective and legitimate than military action.

The US is the key external player. The Obama administration has been cautious so far. They face a dilemma. On one hand, the US has been a long-time supporter of the regimes in Arab countries, in exchange for oil. Supporting the protesters could undermine longstanding ties in key states.

On the other hand, the Obama administration cannot sit by and watch regimes put down their people with excessive force. Supporting the status quo can be disastrous if the revolutionary movement succeeds. The lesson from the 1979 fall of the Shah of Iran echoes in American policy thinking.

For some Asian governments, the immediate concern is whether the movement could leap across continents through the media and Internet. Ripples will be strongest where there is no democracy, and there is corruption and unemployment or rising food prices.

In China, protests in a few cities have echoed the call for a "Jasmine revolution". The Chinese authorities have announced measures from controlling the Internet to monitoring the migrant workers and acting quickly on protests. Conditions seem quite different and chances are that major East Asian countries should weather a contagion effect.

WHAT COMES AFTER?

Possible problems, however, extend into the medium term. What comes next after "revolution"? Will there be Muslim governments or military coups? If there are democratic coalitions, will there be cohesive governments that can get on with business? There is a possibility that weak states could emerge without effective governance, as we have seen in Iraq after Saddam Hussein.

Such medium-term scenarios can affect Asia even more than the immediate revolutionary turbulence. Key Asian economies depend on the Middle East for oil and energy and their growth has generated the largest demand for oil and gas since the global economic crisis hit.

Oil prices have started to rise. This comes on top of soaring food prices and quickening inflation. There are also impacts on Asian corporations. There has already been a market discounting of companies with deals in the Middle East. This is, in many cases, a knee-jerk reaction.

If the countries emerge with working governments, the probability is that they will honour the contracts unless these are tainted by corruption or seem to be superfluous white elephants. The new governments will aim to reassure the international community that they are not autarkic and show their people that improvements are being made to their daily lives.

If what emerges are radical Muslim regimes or incoherent, failing states in key Middle Eastern countries and oil exporters, then it will not be just companies with specific links to the region. Asians and all who have relied on the steady supply of oil will have to face up to the wider implications of the Arab awakening as a rude, unexpected and inadvertent shock to the global economy.

But if what emerges are viable and more representative governments, then Asians should be able to find workable partnerships, whether at the government level or for business.

Author: 
Simon Tay
About the author: 

Simon Tay is Chairman of the Singapore Institute of International Affairs







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