The Middle East in 2017: A fragile order

The Middle East has been in turmoil for five years. Die-hard optimists can find a few hopeful signs pointing to possible improvements in 2017.

The Syrian civil war may finally be grinding down, although to what remains unknown. Islamic State (IS) appears to be on its last legs in Mosul. Lebanon finally has a president. Oil prices have risen in the wake of the OPEC agreement, and look set to stabilise in the $55-$60 range, at well under half their peak, although better than the averages for 2015 and 2016.

But hopeful signs are meagre in comparison to those that pessimists can point to as suggesting the region's travails are likely to continue. The recently released UNDP Arab Human Development Report summarizes the sorry state of the Arab world, where 5 percent of the global population has on average half the world's terrorist attacks, battlefield deaths, internally displaced people and refugees.

The region also has the highest rate of youth unemployment, some 30 percent, while its intensifying inequality is already well above the developing world's average rate.

The Arab spring, resulting from economic conditions identified in this report, pushed several of the region's Humpty Dumpty states off their walls and - like the riddle suggests - all the king's horses and all the king's men have yet to put them back together again. 

That the Middle East has not dissolved into a complete Hobbesian nightmare is largely because its five most powerful states have not been knocked off their perches. Only two of those states, Saudi Arabia and Egypt, are Arab, while the other three, Israel, Iran and Turkey, are of course non-Arab, a ratio reflective of the overall balance of power between Arabs and non-Arabs in the region.

There are too many Saudis and too little oil income to sustain the social contract by which political quiescence is traded for material benefits

The prospects for these five states are thus vital for assessing what 2017 has in store for the Middle East. If any one of them should succumb, not only would those living in that country - a greater number in each case than in Libya, Yemen, and Syria - suffer like residents of those countries have since 2011, but regional power balances would be upset, probably causing yet more violence.

The two most precarious of these five key states are again Arab, Saudi Arabia and Egypt. The former is in greater peril than at any time since the struggle for power between King Saud and Prince Faysal and the 1962 overthrow of Yemen's Imam, which provided the pretext for Nasser's military challenge to Saudi Arabia. The present Saudi crisis has three, interrelated causes.

The first is the collapse of the rentier economy upon which the present nation state has been built since 1973. There are too many Saudis and too little oil income to sustain the social contract by which political quiescence is traded for material benefits.

Recent price rises will only slightly ameliorate the intensifying crisis of the Saudi rentier state. Vision 2030, concocted by western consultants with no input from Saudi stakeholders other than the royals who commissioned it, is a pie in the sky substitute for nationwide political consensus on wide ranging reforms that would necessarily reduce the ruling family's powers and privileges.

Year by year political and economic pressures will mount.

Whether 2017 is the year in which they boil over or not remains of course unknown, but there is virtually no chance for economic improvement during it. 

Vision 2030 is a pie in the sky substitute for nationwide political consensus on wide ranging reforms

The second cause of current Saudi troubles is the unresolved generational leadership succession, in which 80 year old King Salman seeks to sideline other third generation contenders by ensuring that his son Muhammad ultimately sits on the throne.

This ambition poses a direct threat to Prince Nayif's son, Crown Prince Muhammad bin Nayif, and an indirect one to several other family branches. Muhammad bin Salman's youth, naked ambition and abrupt departures from tried and tested Saudi approaches, especially in foreign policy, exacerbate intra-family tensions.

Salman's recently completed palace to end all palaces in Spain, combined with the purchase by Muhammad bin Salman of a $100 million luxury yacht, both coming at time when other royals are having their stipends cut, cannot but further aggravate those tensions.  

Third, the ruling family has not figured out how to conduct a foreign policy other than just writing cheques. In the past it could afford to do so, did not have the military capacity to do much other than that, and regional tensions were of a magnitude that they could be addressed successfully with subventions.

Now all those factors have changed and the Saudis are trying unsuccessfully to muscle others around.

Their military capacity is simply not up to the challenge, as their big spending has not created ground forces that have the ability and will power to take on dedicated asymmetric forces trained and equipped primarily by Iran, the world's leader in developing and exporting a successful asymmetric warfare model.

The ruling family has not figured out how to conduct a foreign policy other than just writing cheques

Yemen is becoming Saudi's Vietnam, just as it was Nasser's. It has already lost in Lebanon and Syria and is at odds with Egypt, the only Arab country that has the numbers to really do something to reverse these losing situations.

Its relations with the US and the West in general have sunk to an all time low and unlike other regional countries that have turned to Russia in such circumstances, its relations with Moscow are even worse than with Washington.

So the lethal combination of declining relative resources, intra-family tensions and a manifestly failing foreign policy could boil over in 2017 with profoundly disruptive consequences for the entire Gulf region, to say nothing of the broader Middle East.

Bad as Saudi prospects are, Egypt's are still worse. And just like in Saudi Arabia, the downturn of the economy, coupled with domestic political tensions and a manifestly inadequate foreign policy are the three causes of Egypt's travails.

2017 begins with the country's economy in shambles, suffering from inflation of 19.7 percent and a currency that lost half its value in the closing month of 2016.

Vital imports, including medicine, intermediate goods and raw materials necessary to keep industry running, require foreign currency the country simply does not have, despite the $12 billion IMF loan agreed in November.

Since subventions from Saudi Arabia and other GCC states dried up in 2015, Egypt's economy has been on a downward trajectory that will deepen in 2017.

The Sisi regime is stumbling under the weight of the economic crisis and the manifest incompetence and increasingly bizarre behavior of its leader.

His public crying in the middle of a recent speech and reshuffling of key members of the military high command are suggestive of the pressure and threats he senses.

Bad as Saudi prospects are, Egypt's are still worse

Surrounded only by sycophants - whether in the cabinet, the parliament, or in the government media - and depending ever more heavily on military intelligence as the main prop of his regime, Sisi is growing dangerously out of touch with his increasingly restive people.

His erratic foreign policy poses a third threat to regime stability. In the closing days of 2016, having received a phone call from Israeli Prime Minister Netanyahu, he ordered his UN Ambassador, then Chair of the Security Council, to try to head off a vote on Israel's illegal settlements.

Of all countries, New Zealand then marshalled the four votes necessary to overturn Egypt's delaying tactic. The Council voted 14-0 in favor of the resolution. Egypt was disgraced in front of the Arab world, demonstrating itself to be more pro-Israeli than even New Zealand.

This foolish step is only the most recent in a series of foreign policy mishaps. Attempts to cozy up to Iran and the regime of Bashar al-Assad have brought no return other than for Saudi Arabia and other GCC states to cut off their subventions.

In the final week of 2016 it was revealed that Egypt had spent more importing arms, some $12 billion, in 2016 than any country in the world, other than Qatar. But these imports have done little if anything to strengthen an Egyptian military that has as yet to demonstrate it can subdue a few hundred insurgents in the Sinai, or provide security in the capital, including to the Coptic national cathedral.

Egypt's economy has been on a downward trajectory that will deepen in 2017

Egypt, in sum, is increasingly rudderless, adrift in turbulent political and economic seas that could swamp it in 2017. While a new President Trump might wish to throw his friend Sisi a lifeline, that is a thin thread upon which to hang the country's future.

Things are not as bad in Israel, Iran and Turkey, but they are not good either. As Secretary of State John Kerry said in his parting shot at Israel, under Netanyahu's leadership it has drifted so far to the right that it has lost touch with regional and global realities.

The BDS campaign against it is bound to gather momentum in response to Netanyahu's intransigence, and so the isolation will intensify. This in turn will provide the Palestinians with leverage against it, both internationally and "domestically".

Were the leadership struggle within Fatah resolved and were that organisation's relations with Hamas to improve, then the Israel-Palestine conflict would spring back onto the regional agenda with a vengeance. Instead of serving as a rock of stability in the region, Israel's hardline policies will cause it in 2017 to be a source of greater regional instability.

Although Iran appears as the region's big winner in 2016, that appearance is deceptive and not an indicator of what is likely to come in 2017. Signing of the nuclear agreement combined with Trump's election has intensified the country's chronic factional struggles for power, increasingly solidifying into reform and conservative camps as the May elections approach.

Neither side is strong enough to overwhelm the other without some major change in the Iranian economy or the country's standing in the region.

Although the recent oil price rise will enhance Iranian revenues, a major breakthrough in earnings will not occur because of OPEC limits on Iranian exports, steadily increasing domestic consumption and because while oil production is rising, it will be a long time before it reaches levels attained under the Shah, if ever.

Many US sanctions remain in place and could be intensified, were Trump to want to do so. The prospects for a huge "peace dividend," for which reformers were hoping, seem dim.

If the US does indeed apply more economic and possibly indirect military pressure on Iran, it will strike back through proxies in the region, reinforcing a downward cycle of relations between Tehran and Washington. This in turn would bolster the hardline faction and indeed, might be welcomed by it.

Although Iran appears as the region's big winner in 2016, that appearance is deceptive

The interplay between internal power struggles and Iranian foreign policy will intensify in 2017, with unpredictable consequences. Foreign adventurism combined with mistreatment of dual nationals and of Iranian citizens themselves could grow in tandem with increasing ascendancy by the hardliners. Prospects for reformers being buoyed by economic recovery and a receptive Washington seem less likely.

The regional pack of cards seems to have only wild ones, of which Erdogan's Turkey is another. His reign is steadily becoming more characterised by a worsening crackdown on opposition, with inevitable reactions among liberals, Gulenists and Kurds. His foreign policy is much like Sisi's, in that it is bouncing between alignments with the US, EU and Russia, with no obvious strategy or gains, other than to seek out international support for his personal consolidation of power - much the same motive as Sisi's.

So Turkey and Erdogan will be under yet more pressure in 2017 from terrorism and a recently purged military increasingly overstretched by fighting in Syria and at home.

Problems with the EU over Syrian refugees will intensify. Difficulties with Egypt over opposing stances toward the Muslim Brotherhood could be resolved in light of the Gulenist purge and relations might improve with Saudi Arabia for this and other reasons, but such changes are by no means pre-ordained.

Turkey's economy is floundering as the dollar continues its ascent, dragging down the balance of payments and driving up the budget deficit as debt servicing consumes ever more of the government's resources, along with Erdogan's grandiose construction projects, again akin to those of Sisi.

In sum, the five major pillars of the region still standing are all confronting intensified domestic political problems in 2017, with corrosive effects on their already problematic foreign policies.

One or more could easily choose to try to remedy their domestic problems by stepping up conflicts with another member of the "gang of five". Regional tensions thus have a good chance of worsening precisely when the Middle East is most in need of security and stability to address its development failures.

2017 is unlikely to be any better and it could be worse than 2016 was for this struggling region.