535: Middle East strife and outlook for property investors
Problems in the Middle East have been bubbling away for years, but they are just about to explode.
History: Years ago, the Middle East had a tiny population and produced huge amounts of low cost oil. States were generally run by autocratic Kingdoms and family elites. These nations used their oil and mineral-mining wealth to create strong a military and police forces that kept trouble at bay. Back in the 1930s up to 1960, the UK had a lot of influence in the region though over time oil resources were nationalised and ruling families took full control.
Expansion: As populations exploded, the amount of disaffected youths and unemployed rose. There was less oil revenue to go around and social spending costs and energy subsidy costs skyrocketed. Energy usage also skyrocketed in most Middle Eastern nations. As oil prices rose and the US printed huge amounts of dollars from 2008-2011, things became very unstable because oil exporters were achieving record revenues (e.g. Saudi Arabia, Kuwait, Qatar, UAE) whilst the poorer oil importing nations or countries with rapidly decline oil production rates (e.g. Egypt, Syria, Lebanon, Tunisia, Jordan) in the Middle East saw food prices skyrocket as inflation took hold and their currencies declined in value against the dollar. This led to unrest and the Arab Spring uprisings. This time the US policy seemed to be “watch and see and encourage new democracies” rather than support the existing stable autocratic regimes. The family run autocracies then collapsed in places like Tunisia, Egypt, Libya (the latter triggered by UK/French bombing) and violence erupted in Yemen and Syria. Algeria also suffered insurgency along with Mali and northern Nigeria and Cameroon whilst Somalia continued its journey as a failed state. Sectarian violence between Sunni and Shia groups escalated and extremist groups started taking over vast desert regions in NW Iraq, Yemen, eastern Syria, most of Libya plus vast tracts of the underpopulated Sarah Desert. Many blame the US for firstly invading then failing to help create a stable democracy in Iraq. Meanwhile tensions between Saudi Arabia (Sunni) and Iran (Shia) have increased dramatically – probably in part because of the Iranian’s nuclear ambitions and Saudi’s refusal to lower oil production rates that helped trigger the oil price crash from $115/bbl in June 2014 to $55/bbl in April 2015.
Chaos: The overall situation in the Middle East is getting more and more chaotic with extremist militia taking over vast tracks of the region – with Saudi Arabia bombing their neighbour Yemen and Iran supporting the militia against ISIS also backed by the US. So where is all this leading. Quite frankly the future looks very bleak indeed – we see a high chance that Saudi Arabia will come under attack from various quarters in the next year or so as militant groups target their oil infra-structure. Their bombing of Yemen is not be popular regionally and they seem reluctant to actually put “people on the ground”. As some people say “you can’t win peace by bombing”. Iraq is fighting a rear-guard action against ISIS. So far - the relatively peaceful Sunni nations of Oman, UAE, Saudi, Qatar and Kuwait have remained unscathed by the sectarian violence – but how long this remains is open to question with so many other states collapsing and the problems growing ever closer to this secure oil hub region. Iran remains peaceful largely because of its very strong security forces. This is also true of Saudi Arabia. But as the US have become more and more passive over the years – Saudi now probably feels it needs to act as the regional military lead and the huge concern is that one day – they will have a direct head-to-head with their arch regional competitor (some say enemy) Iran.
Sectarianism: The low oil prices, Iran’s nuclear ambitions and the Shia-Sunni sectarian extremism is a recipe for disaster – only time will tell whether a fully fledged regional war breaks out. It’s certainly heading in that direction.
Property Investors Beware: For property investors, there are a few key points we would like to make:
· Avoid any property investment in Africa and the Middle East at this time
· Focus property investment in relatively safe secure countries well away from warring parties – USA, Norway, Sweden, Denmark and the UK and probably relatively safe from this turmoil.
· Areas that look likely to descend into sectarian strife should be avoided.
Axis of Strife: The main sectarian wars and terrorism tends to occur in a line from Libya through the Middle East and Pakistan – with some problems in Indonesia. Problems occur on the fringe areas like the Caucus countries and northern Nigeria/Mali through the NE Kenya. All these areas should be avoided – from both mainstream residential plus commercial and holiday homes since price can tank at any time due to war/strife. The UAE and Dubai seem to be very stable - the region in the heart of this axis – but one really does not know how thinks will progress over time, so spending £1 million on a villa in Dubai is in our view risky.
Americas: The continents with the least war, terrorism and strife are North and South America. Countries like Brazil – which is larger than Western Europe – is still largely underdeveloped and long term probably has quite a bright future. However, short term the low oil prices will hit Petrobras with their gigantic debts so the Brazil growth rate will probably slow in the next few years. We think the Americas will continue to have less war and strife - in significant part because there is very little sectarian or religious strife.
Russia: Russia is another country to avoid unless you are Russian – because of the instability caused by lower oil prices, the crashing currency and ongoing security issues in SE Ukraine with the US/EU sanctions.
We hope this Special Report has given some interesting insights for your property investment strategies. If you have any queries, please contact us on email@example.com