The Shiite-Sunni conflict and diminishing petro-earnings will affect two millions Nepali workers in the Middle East.
The Middle East is once again in limelight due to the simmering diplomatic tension between Iran and Saudi Arabia and the constantly falling price of fossil fuel. While the world watches these major developments, Nepal needs to be vigilant and at the same time start preparing for the contingency. The potential sectarian violence, if not a full-fledged inter-state war, due to Shiite and Sunni divide, and the shrinking economies of the Gulf States with diminishing petro-earnings, will profoundly affect nearly two millions migrant Nepali workers there.
The region has also become a theater for proxy war between major powers as seen in Syria now. Even a minor trigger can push the entire region into chaos. As our economy is heavily reliant on remittance, which accounts for close to 30 percent of the GDP, any economic downturn, sectarian violence and instability in the Middle East could easily push Nepal into an economic crisis.
Falling oil prices
Until mid-July, 2014, the oil price was at around US $110 a barrel. But this month, this price has hit the lowest level in 12 years, plummeting to $27.67 a barrel as of January 18th. The main reason for his price fall is the oil and shale gas boom in the US. The US oil production levels were at their highest in almost 30 years in 2015 as the country brought to use new technology to extract gas and oil from shale formations.
President Barack Obama announced, in his State of the Union address on January 12th, that the US had cut its import of oil by nearly 60 percent. The US is likely to keep up its current production to cut carbon emissions, and to fulfill the commitment made in the recent climate conference in Paris.
Shale oil and gas are becoming a game changer in global oil market. While the market of fossil fuel appears to be shrinking, the supply of the fossil oil continues to increase with Iraq restoring its oil refineries, and Iran, which had to cut production due to economic sanctions, starting to pump in huge quantities following the Geneva agreement in which it agreed to halt its ongoing nuclear program. Likewise, Russia, whose 70 percent export income comes from oil and gas, is under pressure to export oil to support its troubled rouble. Although the price continues to fall, oil producing countries including Gulf Cooperation Council (GCC) member states Saudi Arabia, the UAE, and Kuwait are under economic pressure to continue their current level of production as they are heavily dependent on petro-earnings. This means all these oil producing nations will be forced to compete for the limited market in Asia and Europe with cheaper prices.
Many EU countries are, likewise, under pressure to introduce clean energy technology, with the rise of influential Green campaigns and Paris climate accord. And the rising Asian economies like China and Japan have already started witnessing economic slowdown. The falling price of oil is certainly good news for those not dependant on remittance, but for us it’s not. Although some analysts say GCC countries can withstand losses from falling price for some time, this is eventually going to badly hamper their economies.
The IMF in October, 2015 predicted that the GCC economies will grow by around 3.7 percent in 2016. The growth rate is high compared to other emerging markets, but below the region’s average of 5.8 percent between 2000 and 2011. The latest freefall in price of petroleum products is likely to further hit their economies. This will ultimately affect migrant workers including those from Nepal, as companies under economic strain will start mass lay-offs, if not close their companies altogether. Weakening GCC currencies and reduced salary of migrant workers are equally likely. In such a situation, Nepal will not only lose its main source of foreign currency, but also face insurmountable challenge to manage tens of thousands of unskilled and semi-skilled unemployed youths at home.
The tension between Iran and Saudi Arabia is not new. In fact, the proxy battles and jockeying for leadership of Muslim world between Sunni Saudi Arabia and Shiite Iran are largely responsible for all the recent troubles in the Middle East. Although these two countries have been already engaging in proxy wars in Yemen and Syria, supporting opposite sides, the tension between the two came to the surface after Saudi Arabia executed a prominent Shiite dissident, Sheikh Nimr al-Nimr, on January 2nd. This prompted irate protestors in Tehran to set fire to the Saudi Arabian embassy, eventually pushing Riyadh to cut its diplomatic relations with Iran and kick out Iranian diplomats from Riyadh. The Shiite and Sunni divide is growing in the Gulf region as the Saudis are reportedly putting pressure on its Sunni allies to cut diplomatic ties with Iran.
While the Sunni allies of Saudi Arabia such as Bahrain, Kuwait and Qatar have already either severed their relations with Iran, or downgraded their diplomatic ties, Iran appears determined to bolster its support of Shiites in the region. Iran, for instance, has been supporting Shiite rulers in Iraq, Assad in Syria, Hezbollah fighters in Lebanon, and the Shiite Houthis fighting Saudi-led Sunni war in Yemen. Although there are fewer Shiite-led countries compared to Sunni-led countries in the GCC, and the overall population of Shiites is much less as compared to Sunnis, the Shiites have sizeable presence, enough to destabilize and create unrest in each of the GCC countries. For now, Iran and Saudi Arabia are unlikely to engage in a full-fledged inter-state war, but sectarian violence is likely should these nations choose a zero-sum game and migrant workers from abroad will be in trouble.
Thus the falling prices of fossil fuel and the ongoing diplomatic tension between Iran and Saudi Arabia may eventually have an adverse impact on our economy. As the Middle East is becoming a flashpoint, any minor trigger may put the entire region in instability. In fact, the region is ripe for another Arab Spring because of its sectarian divides, repressive regimes, increasing awareness among youths against the oligarchy, and now the start of economic distresses.
Our economy has managed to stay afloat even after five-month-long Indian economic blockade largely because of remittance. We can only imagine the consequences if we are to suddenly lose this lifeblood of our economy.
Therefore it is high time to think of creating jobs at home, and gradually discourage youths from going to countries where the pay is low and working conditions inhumane. The country has just promulgated a new constitution, marking a big transition from decade-long civil war to peace. What could be more auspicious time than this to start hydro, road, airport and other major projects, and create jobs at home? Hope our policymakers consider this before it is too late.
(Originally published in the Republica, Nepal.)