Danger even in weakness

23 December 2014 By Edward Hadas

The rise of Islamic State showed just how narrow purely economic readings of politics can be. The radical group draws support from all social classes and has no economic agenda – it does not promise earthly prosperity or exploit anyone’s material interests. All the same, its ability to disrupt politics in the already fragmented Middle East could have serious consequences for output and growth.

The threat from IS may be diminishing. It has suffered military setbacks and the sharp fall in the oil price may erode its funding. For most of the governments in the region, shrinking oil revenue is a larger worry than a revolutionary religious movement. But IS remains a problem.

In Syria, the group continues to make a terrible situation even worse. In Iraq, although the IS campaign has not had much effect on oil exports, it remains a threat to a new government which is not yet firmly established. Even if the organization is losing ground, the threat of a revival is likely to keep scaring away needed investment.

IS also complicates the situation in Turkey whose GDP, at more than $820 billion, is nearly four times the size of Iraq’s, according to the International Monetary Fund. The Turkish government’s perceived reluctance to fight vigorously against IS just across the border has angered the nation’s Kurds, who account for as much as 20 percent of the population. The Kurdish question contributes to the political difficulties which restrain Turkish growth.

There is a more positive potential implication. IS looks so bad to the governments of both the United States and Saudi Arabia that Iran is starting to seem a lesser threat. The combination of goodwill from cooperation against destabilising radicals and pain from a low oil price could help tame Tehran’s policies. Ultimately, that could boost the growth prospects of the roughly $400 billion Iranian economy.

Even if the strength of IS wanes in 2015, it has changed the political and economic balance of the Middle East. In the future, every government will have to dedicate more resources to the control of radical religious groups. That’s a drag on the region’s economy – and maybe even the world’s.

This view is a Breakingviews prediction for 2015. Click here to see more predictions.

 

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