Asian Corporations, Middle East Oil and New Geopolitics

The Middle East’s new geopolitics are creating a more challenging environment for Asian corporations. While Iraq’s future viability as a state is questionable due to the June battlefield successes of the Islamic State of Iraq and Syria (ISIS), more terrifying is the Sunni extremist movement’s incitement for a broader regional Sunni-Shia civil war. Add to this the potential fragmentation of Yemen and Libya and the ongoing brutish civil war in Syria and we are left to ponder - will a new round of instability spread into the major oil-producing states in the Persian Gulf?

If so, Asian companies (and economies) are going to have a major headache. According a Chatham House May 2014 report, Asia buys 75% of Middle East oil exports and the Middle East supplies close to 50% of Asian oil consumption. A major disruption in those supplies, complimented by a likely price spike will hurt Asian manufacturing and cause domestic market disruption. Equally important, many Asian companies are active in the Middle Eastern energy business, being involved in everything from exploration, production, construction, and financing. According to the World Bank, the Middle East and North Africa needs $100 billion worth of infrastructure investments per year for the next 15 years. For many Asian companies this is an important source of current and future business. ISIS’ threat to make Iraq into a failed state should make both Asian corporate leaders and their country’s economic policy-makers start thinking of the impact of the Middle East’s changing geopolitics. At the very least, Asian corporate chiefs are going to need to have a Plan B that takes into consideration the potential for greater disruption as the Middle East is going to remain as a major testing laboratory for the sometimes volatile mix of politics and religion.