Economists often use what’s called a misery index to measure how the average citizen is doing economically. Usually it’s calculated based on the rates of unemployment and inflation.
In today’s Middle East the two more relevant variables for a misery index are petroleum prices and coronavirus cases.
Oddly, that index would show that things are not so bad right. The first number is truly a misery: The price of oil is a dismally low $26 per OPEC barrel as of early Thursday. But the second number is cause for relative relief. Not counting two outliers – Israel (a developed economy) and Iran (an acknowledged disaster area that got hit early and hard) – the number of confirmed coronavirus cases is a surprisingly modest 4,460 for the region, or just 39.5 per million people.
The first number is an unchallenged fact; but the second number is almost certain a massive undercounting.
We’ll start with the coronavirus figures. Across the region, the announced rate of contagion as of Wednesday evening is very, very low nearly everywhere, ranging from 4 (Egypt) to 49 (Lebanon).
Even Iraq, which borders the coronavirus hotspot of Iran, had reported just 346 cases as of Wednesday, a rate of 9 per million. Syria and Libya only reported their first cases in the last few days and as of Wednesday claimed to have only 4 and 1, respectively.
Interestingly, one of the few exceptions to the official low rate of confirmed coronavirus rates is the tiny emirate of Bahrain, which had 419 as of Wednesday. Egypt, with more than 60 times as many people, reported just 442. The difference is that Bahrain has been aggressively testing for the virus, so its official figures are probably closer to the true rate of contagion throughout the region.
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There have been accusations of government cover-ups, most notably in Syria and Egypt. When the Guardian reported in early March on a Canadian study that estimated that Egypt’s rate was more than 19,000, versus the official figure of 3 at the time, the government’s response was to throw the reporter out of the country.
However, the more likely explanation for the low contagion rate in the Middle East is simply the inability of poorly run countries to monitor the progress of the virus, much less care for their sick and take proactive measures to prevent its spread.
The Middle East is a place waiting for the pandemic to run wild – a mix of failed states like Libya, Yemen and Syria, which have no effective healthcare system at all, and rich countries like those in the Gulf that have large numbers of travelers coming and going and bringing the virus with them. The global aviation hub in the United Arab Emirates only closed itself to air traffic this week.
Regardless of the official figures, the Middle East is going into lockdown and the economic impact will almost certainly push the region into a recession. Egypt expects to lose $1 billion in tourism revenues a month. The Gulf states will feel the same pain as will Saudi Arabia from the loss of pilgrimage traffic. Most of the economies of the region are too low tech and too internet-unready to function if people can’t be physically present at work. Few countries have an effective social safety net and most are too deeply indebted to spend generously to counter the economic impact of lockdown.
Misery of oil prices
The misery of oil prices is easier to see because there’s no disputing the numbers: Since the onset of the coronavirus pandemic, prices have fallen 50%. This is in part due to plummeting worldwide demand as one country after another goes into lockdown and in part due to Saudi Crown Prince Mohammed Bin Salman.
Whether he’s dealing with dissident journalists like Jamal Khashoggi or uncooperative allies like Qatar, the prince's style is to come down hard without regard to the consequences. So, when Russia earlier this month refused to agree with OPEC to production cuts in response to sagging oil demand, the prince turned on the Saudi spigots and started selling oil at a discount.
Not smart, but typical, and now Saudi Arabia and the other Gulf oil exporters are reeling. Even before the pandemic, oil prices had been in a funk since 2014, forcing Gulf exporters to cut back spending and impose taxes. The price of oil is now even lower and there is nothing for the Gulf oil exporters to fall back on. Their No. 2 industry is tourism and travel, which is in even worse shape than oil.
The International Monetary Fund estimates that the breakeven price of oil (the price that covers government expenses) is $64 a barrel on average for Gulf Cooperation Council countries, more than double the price now. In Saudi Arabia and the United Arab Emirates, it’s much higher. If the world economy goes into a recession, oil prices won’t be recovering anytime soon.
Regardless, the Gulf’s perpetually nervous rulers have no choice but to lavish money on their economies to counter the effects on the lockdowns they’ve imposed. Between Saudi Arabia, the UAE and Qatar, they’ve already committed nearly $90 billion, and they now face big, unsustainable budget deficits.
Some have reserves they can draw on, but not for very long. Others had already been tapping the global capital markets since 2014 to cover their shortfalls, but fearful investors have now put emerging market borrowers in quarantine. Even the region’s rich and powerful economies are struggling.
Some are saying that the coronavirus will give the Middle East a respite from wars and violence. Maybe so, but it will only be trading one kind of misery for another.