The last three months marked the first anniversary of events considered unthinkable before 2010. The past year saw the outbreak of sweeping protests throughout Tunisia, Egypt, Bahrain and beyond; longstanding autocrats forced to resign, seek asylum, or be hunted down by their onceadoring people; and an outbreak of democracy not imported from the industrialized powers but home-grown in the Arab world. And as each dictatorship fell and each constitution was redrafted, onlookers checked off another successful transformation from the Arab Spring. Such waves of change felt as unstoppable as they were inevitable, and a feeling emerged that it was only a matter of time before the Middle East/North Africa (MENA) region stepped into the third era of Arab awakening.
However, as we have posited in previous outlooks, revolt and revolution are rarely tidy matters even after the protests end and the new leaders take office. The real change taking place throughout the Arab world is with the peoples' understanding of their relationship with the state. Countries are becoming painfully aware that the old model of protective autocracy is no longer functioning, but there are yawning differences in ideology about the new dynamics required. Further to that is disagreement about the role of religion in government, adding a new dimension to the problems at hand.
However, as we have posited in previous outlooks, revolt and revolution are rarely tidy matters even after the protests end and the new leaders take office. The real change taking place throughout the Arab world is with the peoples' understanding of their relationship with the state. Countries are becoming painfully aware that the old model of protective autocracy is no longer functioning, but there are yawning differences in ideology about the new dynamics required. Further to that is disagreement about the role of religion in government, adding a new dimension to the problems at hand.
Low Risk - Consolidation and Accommodation
It may seem unusual that the previous table shows Tunisia - the birthplace of the Arab Spring - in the "Low" category, while its immediate descendant in revolution, Egypt, remains classified as "High." One year ago, Tunisia would have been in the high category as well, but since then its consolidation has been almost as surprising as the uprising itself. This is the ideal result from such an upheaval but far from expectations. Most countries that experienced similarly widespread social unrest are still rooting through their problems and occasionally lapsing back into crisis. The ones with the best results so far - the low-risk countries - either quickly came to consensus, addressed public concerns early in the process, or in certain cases, never had a real problem in the first place.
It may seem unusual that the previous table shows Tunisia - the birthplace of the Arab Spring - in the "Low" category, while its immediate descendant in revolution, Egypt, remains classified as "High." One year ago, Tunisia would have been in the high category as well, but since then its consolidation has been almost as surprising as the uprising itself. This is the ideal result from such an upheaval but far from expectations. Most countries that experienced similarly widespread social unrest are still rooting through their problems and occasionally lapsing back into crisis. The ones with the best results so far - the low-risk countries - either quickly came to consensus, addressed public concerns early in the process, or in certain cases, never had a real problem in the first place.
It is much to the benefit of this group of Gulf countries that they are resource-rich and populationscarce - the residents of all three countries combined would not quite match that of Cairo. As the risk scale rises, so does population, or more specifically, per capita value of known resources. For small countries with an embarrassment of riches, it would be difficult for a state to not spread the wealth around. But as the ratio declines either due to low resource as in Bahrain or to a rising population such as Saudi Arabia, a state must find effective ways to allocate its wealth.
The MENA region anomalies to this resource rule are currently Morocco and Tunisia. The latter resolved its situation through upheaval, but the monarchy in Rabat did not go through its own period of revolt and consolidation. Its socioeconomic demographics placed it within reach of other high-risk countries - higher-than-average unemployment, low GDP per capita, noteworthy corruption - but its people did not force change upon its government. This may have more to do with the monarchy's willingness to reform over the past ten years and recognize the people's demands, if not totally capitulate. Morocco has often distanced itself from the heart of the Arab world with such relatively progressive thinking, and in this regard it might have spared them from following the path of Tunisia.
For these low-risk countries, it would be remiss to say that any one of them is immune to a second wave of popular uprisings. However, placement in this category suggests they have established the framework and political infrastructure necessary to vent off social pressures before such tensions boil into the streets. As the Arab world transforms, the low-risk countries are the ones most likely to endure this transition without major disruption.
Medium Risk - Gone But Not Forgotten
Even when revolutions fail, the spirit is rarely destroyed. Through history, countless uprisings ultimately succeeded even though they were born in failure. Unless the core causes of the unrest are either remedied or utterly quashed, defeat is only a setback. The subsequent calm may seem assuring, but for the particular restless demographic, this could also be a period more akin to "retreat, reflect, reload." And in the MENA region, such countries could be the sparks that set off another wave of unrest.
Smaller economies such as Jordan and the Palestinian Territories are tied into the drama surrounding Israel, and sometimes their fates are considered more a result of those negotiations rather than events in the larger Arab world. This is a dangerous assumption. These countries may very well be sensitive to relations with Israel, but they are still economies that struggle to look after their own people, provide support, infrastructure and an improving standard of living. As corruption, ineffective leadership and social imbalances become more evident, social frustrations will undoubtedly rise regardless of any dealings with Israel. Oddly, an argument can be made that the one reason the Palestinian Territories and Jordan have not seen further deteriorations in domestic stability is precisely because they need to maintain cohesion when dealing with a rival such as Israel. The gripping poverty and outright failure of government witnessed in the Palestinian Territories would be enough to plunge most countries into civil war, but the Territories have held some semblance of unity due to what it perceives as a greater threat. Still, the underlying risk of continuing instability and a potential for unrest cannot be dismissed, and should weigh into any longer-term assessment.
The most significant country is Saudi Arabia, by and far the largest and most influential in this category. With 26.5 million people and a $560 billion economy, it is among the region's heavyweights. However, in this respect it also has a disconcerting amount of imbalances that bear similarities to those countries that fell to popular uprisings last year. Despite a GDP per capita of $24,000 last year (on a purchasing power parity basis), the distribution scale is skewed along several axes. The less-populated eastern coast of the peninsula, which is also predominately Shia compared with the Sunni royal family, has lower incomes, less development and weak social infrastructure, compared to the high level of inclusion in the western and northern regions. And to go with divisions along religion and geography, a significant gap exists between the public and private sectors. This stratification puts a small amount of the population in high standing while creating several tiers of underserved people.
At the outbreak of the Arab Spring, Riyadh responded with massive stimulus spending, much in line with the strategies other wealthier countries applied, which also included direct payments. Such outlays pacified protestors at the time, but two major questions remained. First, while such direct transfers were generous, as one-off measures that served no long-term purpose, were they truly effective? Second and more importantly, Saudi Arabia does not have the same resources available on a per-capita basis to support continued payments, so when would it ultimately address the underlying issues causing the unrest? In smaller countries this is more easily accomplished, but Saudi Arabia has almost five times the area of Morocco and almost fourteen times that of Tunisia, yet the population density is only one-fifth that of those countries. This translates into a lot of space to cover for each dollar of social investment.
Size does work to Saudi Arabia's advantage, at least in the near-term. First, a dispersed population cannot aggregate as easily, leaving opposition generally uncoordinated even in the days of mass-communication. Also, the most disaffected areas to the far east and south, where broad unrest would most likely emerge, are separated from Riyadh by a long stretch of arduous terrain, which would give the monarchy time to respond with force or finance. This is not to say that the House of Saud is protected from destabilizing unrest. Countries with far more space and far less infrastructure have fallen victim to unchecked uprisings, but those events built strength over time, gaining momentum like juggernauts until their presence was unquestionable and their eventual takeover inevitable. The seeds of such unrest exist within Saudi Arabia's hinterlands, and the monarchy is aware of them. The uncertainty comes when assessing whether Riyadh is willing to apply long-term solutions or merely stop-gap measures that would allow these interests to sprout and grow.
High Risk - Clear and Present Danger
Typically, the high-risk category is an open-ended catch-all for highly-troubled situations, but ours covers two categories - countries where public unrest has degenerated into lawlessness and the state is largely in opposition with its people, and countries where transition is unstable and heading for further turbulence that could set off another round of severe unrest. The first definition is largely reserved for Syria, while the other covers the remaining three countries and with a little tweaking could speak for many others as well.
The situation in Syria is an intriguing collision of forces, some of which have risen before only to be brutally suppressed by the Assad regime. The magnitude of the current protests did not initially compare to that witnessed in Tunisia or Egypt, but President Bashar al-Assad had little interest in addressing its causes. The clashing ethnicities within the country make for a complex story, but the differences have deep historical roots that Assad would rather exploit than correct. His response to this unrest was heavy-handed, using severe force on specific areas of resistance as a warning to others who may challenge his authority. This was the strategy of Assad's father to harshly suppress any dissent, and this brutality was effective for a time. But the current president discovered that this strategy only stoked more resentment against Damascus, and what started as sporadic revolts is now devolving into civil war.
What makes the Syria matter worse is that it has all the elements of a protracted conflict that could drag in neighboring Lebanon and Iran. Syria differs from the experiences of other countries of late in that the state apparatus in Damascus has largely held together over the past year. The downfall of the former governments in Tunisia and Egypt began when factions within the leadership turned on the government and eroded the power base, and as control slipped away the momentum took an irreversible shift. Damascus has yet to experience this. Also, the various factions of resistance throughout Syria may have broad support but they lack any cohesion, reducing their power from one that threatens the established power structure to a protest movement that tries to defend its ground. This suggests that as long as President Assad retains power, his brutal repression will eventually win out unless one of these circumstances changes.
Egypt and Iran stand out not solely because of their political environments - which are indeed strained - but because each country's economic fault lines are shifting at a time when the governments are particularly vulnerable. Regardless of whether these imbalances are driven by external forces (Iran) or internal policy failures (Egypt), the people are more interested in solutions than excuses and in these situations are increasingly likely to make their own changes.
Egypt's political transformation has indeed been profound. As a state that only knew three leaders in the fifty years prior to the Arab spring, the change to a true multiparty democracy has been impressive. However, the popularly-elected parliament is having difficulty working with the transitional powers and the upcoming presidential elections may only aggravate the situation. While resolving political gridlock may be an acceptable growing pain for an emerging democracy, the policy holdup could prove fatal. The country's reserves have halved over the past year and are still falling, the exchange rate is significantly overvalued and the economy is not close to recovery. The policy remedies required to right such a situation will be harsh indeed, and the impact will be more severe and drawn-out the longer it is put off. The repercussions from these needed reforms - unemployment, inflation, economic contraction - can trigger protests and instability even in otherwise stable countries, and we feel Egypt is therefore highly vulnerable to an escalation in unrest.
To the east, Iran's economic woes are not the results of inaction but rather deliberate actions and the expected repercussions. The core of the problem is Iran's uranium enrichment program, which has drawn international condemnation due to its apparent use in making weapons-grade material. A combination of tightening international sanctions, an oil industry that is past its prime and starved for investment, and rising inflation have eaten into the standard of living and put significant constraints on Iran's economic future. Its government has not responded, internationally or otherwise, in a manner that would ease these strains. Now that Iran's major oil purchasers have mostly abandoned its market and the Iranian Central Bank is cut off from international funding, a precarious situation is growing even worse.
The main question regarding Iran's future is which direction Tehran will go. The most favorable route, yielding to international inspections and surrendering its uranium enrichment program, is also the most unlikely, given the bellicose nature of the Iranian government and the amount of prestige at stake for maintaining such an endeavor despite international condemnation. Rather, the alternatives seem to be either an implosion or an explosion - does the government or economy cave in under the burden of its own imbalances, or do the political powers take dramatic action against the international community in an effort to rally nationalist support? There are a number of possibilities that can unfold, but we see one in particular that could impact not just the regional economy but the global outlook, and it centers on the Strait of Hormuz.
Despite its portrayal in the media as rash and unpredictable, Tehran understands all too well that any movements that could be considered a disruption of traffic through the Strait of Hormuz would be taken very seriously and could force an endgame. One-fifth of the world's oil travels through the Strait, and even a brief blockade would send oil markets soaring. The US has promised to prevent any disruption of trade, and direct confrontation could provide Iran the immediate threat it needs to drum up nationalist support. However, this would still not remedy its economic ills, and the country would still slide inexorably toward collapse. At this point there seems like no positive outcome for Iran short of difficult reforms and international negotiations, and neither of those seems likely at the moment.
Looking Forward
We have laid out the broad concepts behind events in the MENA region. The evolution of the Arab world this year will be amazing to watch, but it is important to bear in mind this broader context. Progress and failure cannot be gauged by day-to-day events but rather should come from the trends that develop throughout the year, and whether these countries start pressing against the conceptual boundaries. The political rhetoric out of Damascus will be explosive at times and the headlines quite tragic, but more important is the government's cohesion versus the organization of the armed opposition. The possibility of an Iranian endgame scenario playing out will not come from one particular speech but from a gradual buildup of public discontent over a failing economy. Even in the low-risk countries, the occasional headline will alarm markets, but as long as the situation remains within our boundaries, the premium placed on these economies should be minimal.
Historically, 2012 may prove to be less important to the Arab world than the events of last year. Indeed, what we witnessed in the MENA region in 2011 will be hard to match by any standard. But with careful analysis as the situation develops, we might be able to see if 2013 will be more like this year or a revisit of the upheavals of 2011.
