Rising living costs are adding to existing political complexity of the region
While aiming to capture the short-term rise in opportunities from higher oil revenues, MNCs need to monitor rising political risks in the MENA region closely. Aligning internally on any potential spillover of risks into key markets or disruptions to operations will be critical. Executives need to update assumptions to reflect a delayed timeline for Iran’s return as a viable market and Lebanon and Iraq’s economic recovery, increased political risk in Morocco, and rising Turkish lira volatility risk due to potential tensions with foreign countries.
Risk of Iran/Israel tensions intensifies with reduced Iran nuclear deal momentum: The likelihood of reaching a nuclear deal has declined over the last few months, with Iran inching closer to weapons-grade nuclear enrichment and US President Joe Biden having numerous more pressing domestic political considerations as the country nears its midterm elections. Meanwhile, Israeli politicians have been increasing their calls for a more aggressive military response to a potential Iranian nuclear program and regional policy, intensified by nationalist positioning for the upcoming election in November.
Intensifying protests delay Iraq’s recovery timeline: The resignation of the Sadrist bloc from parliament was followed—as expected—by an uptick in protests in Iraq. High living costs, regional political dynamics, and the ongoing domestic political impasse prolong the risk of heightened instability in the country into H2 2022.
Rising living costs create social discontent in Morocco: Morocco’s economic prospects have dimmed drastically in the last few months. A 70% lower agriculture output due to weather conditions is driving down 2022 GDP forecasts to 0.9%, with risk of rising unemployment and a hit to consumer confidence. Inflation has reached record highs, at above 5%, significantly eroding consumer purchasing power. Risk of social unrest has thus increased, with an online campaign asking for the prime minister to resign as well as a planned strike by transport professionals who are demanding the government subsidize fuel prices.
Election considerations drive a potential Turkey operation into northern Syria: Turkey is increasingly signaling intentions to organize a military operation into northern Syria. Although Iran, Russia, the US, and Syria would oppose such an operation, domestic electoral considerations could easily outweigh foreign relations complications and drive the Turkish government to go ahead with the operation. Focusing on Tell Rifaat and Manbij, Turkey will aim to reduce the Syrian Democratic Forces and limit Kurdish influence in the region.
Security risks increase in Lebanon: Protests are intensifying in Lebanon, as living costs and corruption concerns become more acute due to the prolonged political impasse. Meanwhile, domestic considerations and maritime discussions are driving Israeli aggression into Lebanon, raising the risk of insecurity in the region.
The MENA region is seeing upward revisions to regional average growth forecasts due to higher exports and investment figures for oil-exporting markets. However, in the meantime, numerous political risks are intensifying across the region. A combination of existing complex regional dynamics, increased international focus on the region due to oil supplies, and rising living costs are intensifying political tensions and creating risks of intended and unintended flare-ups.
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