War risks returning the region to the 1980s

Meantime, violence had erupted between Iraq and Iran and an eight-year war that would claim over a million lives had begun. The parallels are not exact.

No historical parallels ever are but business planners should take note as they are close enough to merit serious consideration. How else can business plan for the future if not be analyzing the past?

Last week Saudi Arabia warned that the present attack on Lebanon carried a risk of regional conflagration and a similar statement was issued by Iran. This is not an exaggeration but an accurate assessment of forward geopolitical risk.

Certainly for Lebanon the situation is already grave with an economic recession guaranteed for the second half of the year, and with the length of the Israeli military operation not known the outlook remains bleak.

Massive dislocation of the population, horrendous casualties, considerable damage to infrastructure and a transportation blockade is about as bad as it gets for business activity.

Escalation

So what would it mean for regional business if the conflict becomes a regional one, as it did in the 1980s with the Lebanon and the Iran-Iraq border the unfortunate focus of the fighting?

If we look back to the 1980s there are several points to note. First, the oil spike of 1979 and the Iranian revolution produced a double-dip recession in the global economy in the early 1980s which sent oil prices tumbling. This seriously damaged the regional economy.

Secondly, the military conflicts reduced the attractions of the region for tourism. Third, Gulf oil states were forced into painful budget cuts due to reduced oil revenues despite a willingness to shoulder large budget deficits.

Indeed, many considered the 1980s a 'lost decade' for the Gulf region's development with the wars stifling a regional economy that was already under severe pressure from global recession and an oil price crash.

New geopolitical balance

Of course, it may all be different this time. The geopolitical balance has shifted since the 1980s from a bipolar system to a single dominant power, and in theory this should be a greater guarantee of peace and security. But Middle East business could be forgiven for not placing too much credence on this theory.

For regional business this means that a more defensive strategy is probably called for in the immediate future with an emphasis on consolidation of recent successes and the winding up of loss-making or marginal business positions.

Already UAE retailers are blaming the war in Lebanon for a 10-20 per cent downturn in sales this summer. At the very least the images of war in the media encourage caution among consumers which is not going to be good for business even in a country as far away from the Lebanon as the UAE.