Shut Down (15)

A Handy Guide to the Revolts in the Middle East—And Their Likely Effects On Us
By Gonzalo Lira

The Middle East and North Africa.
In 1848, protests and revolutions swept through Europe. The specific causes were different in each country, but the underlying cause was the same everywhere: The middle and upper middle classes—politically powerless in these absolutist monarchies—wanted more control over their lives.

We are having an 1848 moment in the Middle East: Autocratic governments in two of these countries have been overthrown outright (Tunisia and Egypt), one is sliding into civil war (Libya), and a host of others are teetering. A few other undemocratic governments beyond the Middle East are very worried that their restive populations might get ideas—China, I’m looking at you.

The immediate spark for these revolts has been the rising price of food—but the fuel for this bonfire has been decades of political marginalization for large swathes of the educated population of these Middle Eastern countries.

Autocratic regimes never fare well during economic downturns. The Global Depression that began with the financial crisis in 2008 is slowly but surely picking up a head of inflationary steam, which has been squeezing the middle classes in these countries. A middle class being squeezed economically eventually oozes out political unrest—as we have been seeing throughout the Middle East and North Africa.

Now, in early March 2011, with the fate of these various revolts still unclear, it would be wise to go over them, and see where they are in each country. And it would be wise, too, to examine how these various revolts in the Middle East will affect the rest of the world in the short- to medium-term.

So to begin:


One of the things we forget is that, when history decides to move, it can move fast. President Zine El Abidine Ben Ali had been in power in Tunisia since 1987, winning crooked election after crooked election, all the while supported by the United States and especially France.

All was copacetic for decades—until one morning, December 10, 2010, a 26 year-old vegetable vendor named Mohamed Bouazizi had his cart confiscated by a policewoman in the city of Sidi Bouzid. She insulted him and reportedly spat in his face. When he tried to get redress from the local municipality, he was rebuffed. Out of frustration, humiliation, and likely impulsive foolishness, he doused himself in gasoline and set himself on fire, in protest at the unfairness of it all.

The outrage this triggered in the rest of the Tunisian population is remarkable. Protests started in Sidi Bouzid, then quickly spread throughout the rest of the country, even as the government of President Ben Ali tried very seriously to quell it: Tear gas, riot police, the whole shebang.

But it didn’t work. Ben Ali found himself fleeing the country for his life, and settling in Saudi Arabia with (allegedly) one-and-a-half tons of Tunisia’s gold. Interpol put out an international arrest warrant against him.

What was key in the Tunisian revolt was that the middle and upper-middle classes joined in the protests: Their sense of disenfranchisement made the revolt happen.

Why did they join? Because of food prices: They had been steadily rising, crippling the middle classes’ ability to feed itself. That’s the reason for all protests, all revolts, all revolutions: Food, not freedom. Freedom is just a nice bonus.


Inspired by the Tunisian revolt, and sparked too by rising food prices, Egyptians started their own revolution on January 25. Emphasizing non-violence, the revolt—really just a series of strikes, work-stoppages and peaceful marches and demonstrations centered around Tahrir Square in Cairo—achieved its objective in short order: On February 11, President Hosni Mubarek stepped down, after more than 30 years in power.

(There had been prior disturbances involving Coptic Christians, who had been targetted by radical Muslims, up to and including a New Year’s bombing of a church, which killed 21. Certainly the Coptics—feeling that justice was not being accorded them—joined the protests against Mubarek’s regime. But they weren’t a decisive factor in Mubarek’s resignation. Violence against Coptic Christians has resumed, but it is clearly separate and distinct from the revolt that brought down Mubarek.)

The Mubarek regime was unprepared for the revolt—but it certainly had the military and the men to put it down. By all calculations, the Mubarek regime should have been able to quell the revolt—easily. The problem was, it lacked both the will to violently defend itself, and the support of any large sector of the populace.

Because Mubarek didn’t have the will or gumption to order the military to quell the protests, the military wavered—and that was Mubarek’s doom. He fled Egypt on February 11, leaving Egypt in political tatters.

The military formed a Supreme Council of the Armed Forces—basically an 18-man junta—which immediately guaranteed that Egypt would live up to its international treaties and responsibilities, and further guaranteed that there would be free and open parliamentary and presidential elections within 6 months. Before the revolution, presidential elections were scheduled for September; likely this will be when the general election will be held.

As of last week, the Prime Minister installed by Mubarek, Ahmed Shafik, was forced out by the opposition and by protestors, for being too closely allied to Mubarek. The caretaker administration is being run by Primer Minister Essam Sharaf. There is still a heady feeling in Egypt, but according to friends on the ground, the country is slowly getting back to normal.

The Egyptian revolt showed the rest of the region just how easily an autocratic regime could be overthrown, even after decades in power.


Protests against Col. Muammar Gaddafi began in early February, sparked by the success of the revolts in Tunisia and Egypt. On February 20, the revolt spread to Tripoli—from then on, it was game on, with the protestors taking control of the eastern coastal cities and towns, while Gaddafi held on to Tripoli on the western coast, and the all-important oil fields to the south. Since then, there has been sporadic fighting—more like tussling than a real, bloody civil war.

The reason Gaddafi has not been able to put down the revolt quickly and effectively is because his military is not what people thought it was. For the last 40 years—really since he took power in a coup d’état—Gaddafi has consistently kept his military weak so as to prevent it from becoming a threat to his power. Because of this policy, his weak military is keeping him from putting down the revolt swiftly and outright.

Gaddafi’s air force is the only military resource that has been proving effective in doing any damage to the rebels.

That’s why the so-called “international community” has been toying with the idea of enforcing a no-fly zone over Libya—that air force is the only strong piece Gaddafi has on the board. The Gulf Cooperation Council (GCC) is practically doing hand-stands, pushing for a no-fly zone—but so are the Brits and the French.

The GCC—essentially a regional conference dominated and controlled by Saudi Arabia—wants a no-fly over Libya zone because it’s the next best option to what they really want: An American and allied forces invasion of Libya. Since the GCC know they can’t get that—yet—they’re pushing for a no-fly zone. The GCC are afraid that Gaddafi victorious will export trouble to the GCC states (Saudi Arabia, Bahrain, Qatar, UAE) in retaliation. So they want him gone.

Britain has the most awkward diplomatic situation, with regards Libya: When the troubles there broke out, the Brits wanted to simultaneously protect their oil interests—which they realized would be damaged perhaps irreparably by a prolonged civil war—and at the same time wanted to make up for the embarrassment of having been in bed with Gaddafi for so many years, up to and including releasing the Lockerbee bomber in 2009. So the Brits have de facto sequestered Gaddafi’s assets in the UK, while egging on the Libyan rebels. Problem is, Gaddafi hasn’t fallen as quickly as Mubarek. Indeed, the fact that Gaddafi is still holding on means that he might overrun the rebels and regain control of Libya as a whole—and where would that leave the Brits? In a very deep bind. So Britain has to make sure that Gaddafi is deposed one way or another—they cannot afford to have Gaddafi regain control of Libya, and then extract revenge on the Brits. A no-fly zone—which would deprive Gaddafi of his best weapon against the rebels—is the cheapest, easiest solution.

The United States has been on the fence about Libya because of a combination of surprise and conflicting interests: The surprise was that Gaddafi was internally a lot weaker than anyone anticipated. The conflicting interests is, the U.S. doesn’t want Libyan oil production disrupted—which would force up worldwide prices. A continuing Gaddafi regime would ensure Libyan oil production. At the same time, though, the U.S. wouldn’t mind seeing Gaddafi gone—U.S. antipathy towards him goes back to the Nixon administration.

Meanwhile, as the days pass and both sides dig in, it’s looking increasingly that a civil war will break out in Libya. Scratch that: A civil war has already broken out in Libya. Gaddafi controls the western coast, the rebels control the east, the dividing line between the two somewhere between the towns of Surt (also Sirte) and Ra’s al Unuf (also Ras Lanuf). Refugees (mostly migrant foreign workers) are fleeing by the thousands. American and European nationals have been evacuated.

Oil production, refining and shipping has been disrupted—Gaddafi’s own planes and artillery are attacking the oil processing and refining capabilities of the eastern coast. And though Libya produces 1.5 million barrels of oil a day (barely 15% of what Saudi Arabia produces, a bit more than a third of what Iran produces), it is mostly light sweet crude. So any disruption will have a larger impact on the world markets than the number of barrels would imply. We are already seeing this impact in oil prices.

Bottom-Line: Libya is key to the whole region. If Gaddafi goes down, or if the rebels succeed in forming some sort of more-or-less stable regime in the eastern half of Libya (as they seem quite capable of doing, considering how they captured a British covert team literally the second they landed on Libyan shores, and then placidly handed them back), then every other mutinous nation in the Middle East will have a clear, compelling example of how to topple a hard autocratic regime, and organize a new one to take its place.

In other words, if the Libyan rebels win—either by taking over all of Libya, or by creating a stable eastern enclave—the rest of the Middle East will follow into open rebellion.

Saudi Arabia

Typical protests in Saudi Arabia

A lot of knowledgeable people say that an uprising in Saudi Arabia would be a disaster. Fact is, it is already happening—the only question is whether the uprising will interrupt Saudi oil production and supply.

There are two focal points to the problems in Saudi Arabia: One is the minority Shia Muslim population in the north east, especially in and around the port city of Dammam—smack dab in the middle of the Saudi oil fields. The second focal point of unrest is spread throughout the country, and comprises the disenfranchised Saudi middle-class, who have been bought off over the decades by the Saudi royal family (who of course control the oil), but who have no say in the destiny of their country.

The Shia population in Saudi Arabia—concentrated historically exactly where the oil is, in the north east and along the shores of the Persian Gulf—have been traditionally treated like shit by the Sunni royal family. (The differences and antagonism between the Sunni and the Shia almost perfectly encapsules Freud’s dictum about the narcissism of small differences. But before we get all condescending and arrogant towards Muslims for hating and killing one another over paltry religious differences, let’s be honest enough to recall how much hatred and murder was committed between Catholics and Protestants over our own paltry religious differences. Let’s recall how even today, some of us still dismiss members of the opposing camp over nothing more pressing than the virginity of Mary and transubstantiation.)

One would think that the Saudi Shia would be in league with (or at least allied to) the Iranian Shia just across the waters of the Gulf—but that’s not necessarily the case. The Saudi Shia are Arab, whereas the Iranian Shia are Persians. Think of the differences between, say, French Huguenots and German Calvinists—religious affiliation doesn’t necessarily trump national antagonism.

Besides, the Saudi Shia have found a better ally in the disenfranchised Saudi middle-class. The middle-class’s lack of real political power in Saudi Arabia has been assuaged by the freebies the oil riches have allowed the Saudi royal family to give them—the free education (through university overseas), free health-care and subsidized housing. But all these freebies have not erased the cold hard fact that the Saudi middle-classes do not have control over their destiny—they are for all intents and purposes chattel of the Saudi royal family.

One must keep in mind how corrosive this can be—in fact, the United States has experienced first hand the results of this neo-serfdom: The majority of the terrorists who carried out the hijackings of 9/11 were members of this disenfranchised Saudi middle-class. These terrorists identified the United States and American capitalism as the ultimate reason the Saudi royal family controlled their destinies—that’s why they wanted to strike a blow not just against American military and political symbols (the Pentagon and the White House and/or the Capitol), but also against American economic symbols (the Twin Towers).

So this Saudi middle class anger—diffuse though it may be—is nothing to take lightly. The Saudi royal family certainly isn’t—that’s why they’re gearing up.

Dissident and protest groups have called for a “Day of Rage” on March 11 in Saudi Arabia—this coming Friday. A lot of talking heads and mouthpieces of the Saudi regime say that it will be a “non-event”. Maybe, maybe not. But then, if the Saudi regime really believed that the March 11 Day of Rage would be all-wind-no-thunder, then they wouldn’t be sending 10,000 troops to the north east and Damman, now would they.


Will the U.S. intervene if a Saudi rebellion really gets going? Yes—no question. And the United States would side with the Saudi royal family. The U.S. has bases in Saudia Arabia, men and matériel primed and ready—all of it to defend Saudi oil.

If (and perhaps when) American soldiers start putting down and killing Saudi Arabian rebels in order to save the corrupt House of Saud, that would be the moment America loses every single Muslim from Morroco to Pakistan.


About a month ago, in sympathy to the Egyptian and Tunisian revolts, protestors began gathering in Yemen, demanding the ouster of President Ali Abdullah Saleh.

A New York Times story, reporting on how security forces in Yemen opened fire on protestors on Tuesday, inadvertently says it all:
Tens of thousands of antigovernment demonstrators have assembled outside the [Sana] university, and the number of protesters appears to increase each day. The gathering now stretches for more than a mile. [. . .] In addition to growing in size, the demonstrations here have become more diversified. Students and unemployed young people initially dominated the rallies, but now people from all segments of Yemeni society have joined in.
To repeat: People from all segments of Yemeni society have joined in. Ominous. Delicious.

Yemen produces about 300,000 barrels of oil a day—not Saudi Arabian-league production (9 million per day), but very respectable.

However, the real issue is, the Obama administration has been carrying out a covert war there—much as Nixon did in Cambodia once upon a time. The U.S. alleges that Yemen has become a training ground for terrorists—and has been carrying out drone strikes, which have killed Yemeni civilians.


Not a big oil producer, just shy of 50,000 barrels a day—Cuba produces more. But as Reuters reports, “The majority of Bahrainis are Shi’ites but the island, home to the U.S. Navy’s Fifth Fleet, is ruled by the U.S.-backed al-Khalifa family, who are Sunnis.”

The street demonstrations going on in Bahrain have been aimed at toppling the government and giving the Shia majority a voice in Bahrain’s governance. (Khalifa family members sit on the throne and in the prime ministership, along with most other important cabinet posts.) Again, the protests were sparked by food price inflation, and inspired by the successes of protestors in Tunisia and Egypt.

With all due respect to the wonderful people there, Bahrain in and of itself is trivial—a tiny island nation of less than 1.25 million, with meager oil supplies. But its strategic location—smack dab in the middle of the Persian Gulf—makes it essential. “Home of the U.S. Navy’s Fifth Fleet”—need I say more?


The Associated Press is reporting “Police barricaded a main square in Kuwait’s capital Tuesday before planned protests for greater political freedoms.”

The Kuwaitis are basically a single tribe—but some of this tribe are in the money, and the rest are not. Like the Saudis, the Kuwaiti royal family essentially bribes the rest of the population to keep them docile, while controlling the riches of the country.

But crucially, the Kuwaitis have a huge non-national population—only about one third of the 3 million people in the country are actually Kuwaiti: The rest are expatriate workers. Only about 7.5% of this non-Kuwaiti population are American or European—the rest are Arab, Palestinian, Indian, Pakistani and assorted other Asian. And unlike native Kuwaitis who are not members of the royal family, these migrant workers have no rights, no free anything, and no security of any sort. (Imagine if two out of every three people in the States were illegal Mexican migrant workers, and you get the awful, creepy picture.)

So political protests in the emirate are very, very dicey. On the one hand, political protests by Kuwaitis against their government are for greater enfranchisement of the Kuwaiti middle class. On the other, this political protest could conceivably spread to the migrant, non-national population—who easily have the numbers to take over the whole place. And this would really matter—Kuwait produces 2.5 million barrels of oil a day.

Is the revolt and takeover of Kuwait by its migrant population even possible? Sounds outlandish, absurd—but it could well happen. After all, three months ago, no one would have dreamed that Mubarek would be deposed, and Gaddafi embroiled in a civil war. If Saudi Arabia becomes a flash point, then literally anything is possible.


They’re cool—they got rid of their authoritarian strong man back in ‘79. And the disturbances last year notwithstanding, the ayatollahs running the Islamic Republic are fairly secure in their position in Iran—and they have the Western democracies, especially the United States, to thank for their security.

After all, if the U.S. hadn’t been so hell-bent on sanctions and various forms of retaliations and annoyances against Iran, the Iranian people might have focussed their economic disatisfaction on the ayatollahs.

Instead, because trade sanctions and other such punitive measures hurt no one except the common people—and since the U.S. has been so blatant about imposing sanctions—the Iranian people in their majority view the United States as the enemy, not the Imams. Hey, if some foreign power—say the Chinese—kept railing against Nancy Pelosi or John Boehner, and kept imposing sanctions on the U.S. for allowing them to remain in power, wouldn’t you hate the Chinese with a passion, a hatred which would override any dislike you might have of Pelosi or Boehner? Of course!

That’s what’s happening in Iran—thanks to the blind and idiotic American foreign policy.

Is This An Islamic or Religious Revolution?

In a word, no: The events happening in North Africa and the Middle East are not religiously inspired, or led, or even religiously influenced. Lazy Western media pundits, and certain Western politicians with interventionist agendas might want to portray these revolts as being Islamic in nature—especially Radical Islamic: That bugaboo always sells. But they are not.

These revolts are secular through and through, because they are born out of middle class frustration at their political disenfranchisement, and the economic squeeze that they are currently enduring.

This is why China is so concerned. Like Tunisia, Egypt, Libya and Saudi Arabia, China has a tacit agreement between the people and the leadership, in China’s case embodied by the Communist Party: We will run the country autocratically, but we will deliver economic progress—so you will keep quiet and go about your business while we hold on to political power.

That tacit agreement has worked like a charm—so long as China has been growing, and people’s material lives have been improving. But with rising consumer inflation in China—especially as regards food—the Chinese Communist Party is very afraid of the people revolting, and demanding a voice in their governance.

But back to the Middle East and North Africa: The reason some Western pundits and politicians are eager to paint the revolts as potentially “radical Islamic movements” is that it would give a justification for the West to support the continuation of these autocratic regimes—the corrupt, despicable Saudi royal family most especially.

If the rebels in the Middle East and North Africa are seen for what they are—middle class people sick and tired of corrupt regimes keeping them down—then it becomes virtually impossible for the Western democracies to support the autocracies as they are overthrown by the people one after the other.

This points to the key question:

Why Is This Happening Now, Instead of Before?

The immediate trigger for these revolts and protests has been rising food prices.

Why have food prices been rising? Because of the inflation Ben Bernanke, the Chairman of the U.S. Federal Reserve, has been exporting by way of his easy money policies and Quantitative Easing.

Because of the money-printing The Bernank has been doing via Quantitative Easing, the dollar has weakened against other currencies around the world.

This has bouyed up asset prices in the United States—it’s why the stock markets are at the levels they are, following their collapse back in 2008, and why housing prices haven’t sunk as far down as they should.

But it’s also made commodities—including food—exceedingly expensive, in nominal dollar terms.

Because the dollar is the reserve currency, when food prices go up in dollar terms, it is more expensive for food importers, regardless of whether or not the food is from the United States or some other country.

The reserve status means that, via QE and its iterations, Ben Bernanke has been exporting inflation to the rest of the world—which has made food more expensive, and therefore triggered the revolts in the Middle East that we are seeing.

But that’s the specific reason as to why the revolts in the Middle East and North Africa are happening now. The more important question is:

Why Is This Happening At All?

The Bible tells us: You reap what you sow—God is not deceived. In the case of the Middle Eastern and North African revolts, History is not deceived: Tunisia’s Ben Ali, Egypt’s Mubarek, Libya’s Gaddafi—they were all supported by the United States and Europe. The same goes for the other regimes in the region that are teetering, including most especially Saudi Arabia.

The democracies of the West betrayed everything that they stood for—they deliberately, calculatedly supported these strong-man regimes, against the will of the people of these countries.

Why? Simple—the price of oil. Strong men and autocratic regimes allowed the exploitation of the region’s oil resources by Western companies practically for free—that’s why the various Western democracies installed them, or allowed them to remain. Had the oil been in the control of the people of the Middle East and North Africa, higher royalties would most assuredly have been paid. Thus a gallon of gasoline would long ago have been in the US$7 to US$10 range, if not higher.

Because of the cheap oil, the West and the rest of the world did not need to develop any sensible alternative to oil. The depressed prices—bought and paid for by sacrificing the aspirations of the middle classes in North Africa and the Middle East, and propping up autocrats and corrupt royal families—ensured that oil remained the cheapest source of energy. And it made it uneconomical to go research and implement alternate fuel sources.

That’s why the U.S. and Europe supported these Middle Eastern and North African strong-men: For the sake of cheap and dependable oil.

(The exception to this rule was Egypt: The U.S. was bribing Mubarek to the tune of $2 billion a year not because of oil—it was so that Egypt would play nice with Israel. Turns out that much of this U.S. pay-off made its way not to the Egyptian people, or even to the Egyptian military, but to Mubarek’s pockets. Which is the same story across the region in the oil rich countries: The autocrats took the money, the people took a big fat bagel.)

In order for this system to work, of course, the strong-men had to keep a lid on the people. The Saudis and the Kuwaitis tried to bribe their people, the other countries with larger populations tried to intimidate them by military force and the threat of a secret police.

But in the end, no amount of bribery or intimidation was enough to wipe away the fact that all of the illegitimate regimes of the region had to keep their boot on the shoulder of the people in order to stay in place.

This worked okay, so long as food was affordable, and there was at least the illusion of material progress.

But now? With food prices spiking? With a general downturn in the global economy? Not so much.

Which leaves us with the $62 trillion question ($62 trillion being roughly the total GDP of the world):

How Will This Affect Oil—and the Dollar?

After all, that’s what really matters in the short- and medium-term: How will these revolts affect the production, supply and price of oil.

The answer is, it depends: It depends if the protests peter out or don’t. Libyan oil production is for all intents and purposes halted—but Saudi Arabia is making up for it by pumping an additional million barrels of oil a day. So Libya doesn’t matter, for now.

However, if the Gulf states—especially Saudi Arabia—suffer disruptions in their oil production?

Oh boy . . .

In January 1979, the Revolution that overthrew the Shah interrupted Iran’s oil production. When it came back online, it was half what it had been before the Revolution. As a direct result of this, worldwide oil prices shot up catastrophically, bringing with it rising prices across the Western economies, culminating in March 1980, when inflation reached an annualized rate of 14.8% in the United States.

The only way this spiralling inflation did not turn into hyperinflation was because of the mamoth interest rate hikes of the then-Chairman of the Federal Reserve, Paul Volcker. He had to hike interest rates almost 5% above the rate of inflation, in order to halt it—and he was only able to rein in that beast after three years of high interest rates.

The cost of this killer interest rate hike was the worst Post-War recession ever, up to that time. Consider the following chart.

The current Fed chairman Ben Bernanke seems to think that curing inflation is a snap. He said so on 60 Minutes this past December. But the fact is—and to be perfectly vulgar—inflation is a bitch to bring to heel.

If oil prodution is disrupted because of the problems going on in the Middle East—which is completely within the “possible-to-likely” category at this time—or catastrophically, if there is a disruption of oil production in Saudi Arabia—then we would have a repeat of 1979.

Oil prices would spike quickly to $200 and beyond—how far beyond is anyone’s guess. But the immediate nightmare would be the ripple effect of that rise in oil prices: Food prices would be soon to follow.

In other words, the inflation Bernanke has been exporting will come back at the United States like a boomerang, and clock him upside the head.

But unlike Paul Volcker, who could raise interest rates 5% above the rate of inflation in order to halt it, the U.S. Federal government’s fiscal situation is too weak. With the current $1.6 trillion deficit, the Federal government now borrows more money via Treasury bonds than it takes in via tax receipts—it simply cannot afford to pay higher interest rates for the money it borrows to fund its continued operation.

If the Federal Reserve were to raise interest rates in order to halt inflation, it would make further Federal government debt so expensive that the government would literally go broke.

Bernanke and the members of the Federal Reserve Board know this—so they won’t raise interest rates in order to halt rising consumer prices.

Therefore, if the generalized revolt in the Middle East affects production and supply of cheap oil, then inflation in the United States will ramp up just as quickly as it did in 1979–‘80 following the disruptions caused by the Iranian Revolution. But unlike in 1980, the Federal Reserve will not have the bullets or the balls to halt inflation by raising interest rates. Which means that inflation in the United States will spiral relentlessly, catastrophically out of control.

From the self-immolation of a street vendor in Tunisia, to the collapse of the reserve currency: 2011 is looking to be quite the year.

If you’re interested, you can find my recorded presentation “Hyperinflation In America” here. I discuss in detail what I would do, if and when the dollar crashes.