America’s ‘oil dependency’ was a recent flashpoint. John McCain argued to ‘drill, baby, drill’. Barak Obama proposed investing more money into renewable energies. Either way, America is on a new path. Europe is headed in the same direction. Eventually, they might just break their addition to foreign oil. This is good news. Isn’t it?
Perhaps. The problem is that an oil-hungry East will fast overtake an energy-efficient West. Indeed, China and India alone will account for nearly 50% of the increase in the world’s oil demand between today and 2030, according to a recent report by the International Energy Agency. This isn’t just a demand shift. It’s a power shift. The world’s oil producers will naturally pay more attention to their biggest customers. Increasingly, this will mean Beijing and Delhi, rather than Brussels and Washington.
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I was eating breakfast in a Doha hotel last month. The restaurant was split in two by a series of white bed sheets strung from the roof. I sat on one side. About 80 Filipino men sat on the other. An instructor was lecturing them on worksite safety using an ageing overhead projector. I felt for them. It was a Sunday. The air was also stifling inside the restaurant and the men were struggling to stay awake.
The Philippines is a long way from the ‘old’ Silk Road. But it’s an integral part of the ‘new’ Silk Road. Its army of English-speaking workers is found all over the region from Hong Kong to Lebanon. Indeed, there are over 2.2 million Filipino workers in the Middle East alone. It’s a mind bending statistic. It means that more than 1 in 50 Filipinos live in a Middle East country.
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I imagine that the drop in oil prices is keeping Gulf rulers occupied. The last time oil prices fell so steeply was shortly after the Asian crisis in 1998. Oil prices fell to $10 a barrel at the time. It cost just $15 to fill up the average mid-sized car versus $55 today.
But a lot has changed in the past decade. In 1998, Gulf rulers were fixated by just oil prices. Today, they are equally fixated by stock prices. Why? The Gulf countries have over a $1,000 billion dollars invested in foreign assets. The returns are an increasingly important source of income.
Kuwait’s experience illustrates the point. I estimate its oil exports will be worth around $80 billion this year. This is roughly equivalent to $257,000 per Kuwait household. It’s not a bad annual income.
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They’re back. Traders from across the Silk Road are again visiting Yiwu.
The small coastal city is China’s largest distributor of small consumer goods. It sells mainly to Silk Road traders. But the city’s exhibition halls were empty when I visited in early July. Stall holders sat outside their empty shops playing cards with each other.
What happened? The government tightened its visa policy ahead of the Olympics worried about security during the event. It wasn’t just Silk Road traders that struggled to obtain visas. American and European bankers and CEOs also faced problems.
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I was recently buying lunch in Damascus when two Iraqi immigrants entered the shop. It was an elderly mother and her daughter. The daughter asked a small boy working in the shop to find a chair for her mother. The heat outside was suffocating.
‘There’s so many of us in Syria’, the mother addressed the shop owner with a smile on face. ‘You must be tired of Iraqis by now’.
‘Of course, not’, the shopkeeper replied. ‘Syria is fatih’, he replied. He used the Arabic word for ‘open’.
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The Dow Jones has fallen 14% in the past month. The Silk Road’s equity markets weren’t far behind. Malaysia fell 15%. Shanghai fell 25%. Riyadh fell 26%. The financial crisis is truly global.
I’ve spent the past week trawling through Arab and Chinese newspapers. Editorial pages are filled with commentary on the financial crisis. The West is calling the crisis a ‘once in a century event’. The Silk Road countries say it signals the start of a ‘new century’ altogether.
This doesn’t mean the Silk Road is speaking with one voice. The Arab media have, not surprisingly, linked the financial crisis to military crisis, in particular, the wars in Afghanistan and Iraq.
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The International Monetary Fund advises on economics, not politics. For instance, it recommends that governments cut food subsidies. Makes sense. If governments spend less on food, they can spend more on education, hospitals, and roads.
But what if rising food prices sparks popular unrest?
This is exactly what happened in Egypt earlier this year. Food prices have risen twenty percent in the past year and are still rising. Food accounts for $0.48 of every $1 spent by an Egyptian household. The increase hurts. It was the spark for riots in the satellite suburb of Mahalla.
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The crisis has shaken the world’s financial sector. But eventually the dust will settle and the financial sector will examine its basic principles. The Archbishop of York, one of the Church of England’s senior clerics, recently had some thoughts on the subject.
He said, ‘We find ourselves in a market system which seems to have taken its rules of trade from Alice in Wonderland’.
‘Our country has built its financial strength historically on the manufacturing of goods, where money was the medium of exchange’.
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