As the scent of revolution continues to waft across the Middle East, there is one enduring irony that has been little mentioned during this unfolding event.
Much has been made of the US’ relationship with Egypt. Hosni Mubarak, a US ally committed to Egypt’s peace deal with Israel, has seen his regime fall, while other authoritarian, Washington-backed governments wait nervously to see if the disease is contagious. Yemen’s Ali Abdullah Saleh seems to be on his way out, while Bahrain, where the US’ Fifth Fleet is based, has essentially been invaded by Saudi to prevent a populist Shia uprising.
As the US watches its Middle Eastern partners stumble and fall, one of the causes of the current round of unrest has been largely forgotten: US monetary policy. The Egyptian revolution, which follows directly from the Tunisian unrest that removed its government, had as one of its causes increasing food prices. Of course, longer-term factors such as perceived injustice, high unemployment rates and political restrictions form the fundamental base for discontent, but the higher cost of living for many in North Africa created the spark that lit the tinder. Egypt had already suffered riots in March 2008 owing to the rapidly increasing cost of wheat, and therefore bread. The same happened in 1977.
Why are food prices and those of other commodities currently so high? Partly it is to do with increasing global demand, as a developing Asia starts to consume more. Partly it is to do with poor harvests, particularly for wheat as Russia and Ukraine suffered a devastating drought in summer 2010. But there is also the possibility that quantative easing in the US, the unconventional and extremely loose monetary policy pursued by the Federal Reserve that has involved buying US$1.2 trillion worth of US Treasury bonds and financial assets, has inflated commodity prices globally.
The wall of cash created by the Fed has gone into the US stock market, the so-called Bernanke put, but has also fled the country in search of higher-yielding assets during a period of historically low interest rates. Cheap capital has flooded the developing markets, creating currency appreciation and what Brazilian minister of finance Guido Mantega has called an international currency war, and commodity markets. Gold, oil, wheat, corn, cocoa, soybeans and many other commodities have seen their prices surge. The effects are most acutely felt by those populations that have a disproportionate amount of their income eaten up by rising food prices.
Ironically, therefore, there have been two countervailing forces acting on the Middle East as a result of US policy. While US Foreign Military Financing has armed the Egyptian military and the US’ demand for oil has provided the authoritarian regime in Saudi with oodles of cash, now a different source of American money is destabilising American allies throughout the region.