Economics in

the Middle East

EconomicsThe three basic questions that all economic systems must answers are:

1. What to produce?

2. How to produce it?

3. For whom to produce for?

Types of Economies in

the Middle EastMarket

Mixed-Market

Command

NO government involvement

SOME government involvement(ex: health care, postal service, free education, etc.)

Government has complete control over what is produced, how it is produced, and who (and how much of it) it is produced for)

The Economy of IsraelIsrael has had 2 challenges in creating a mixed market economy:

1. National Security Since the country was created, Israel has been fighting with it’s

neighbors in the Middle East. Because of this, the country has spent a lot of money on

building and maintaining its armed forces. To supplement their budget, Israel receives aid (especially from

the United States)

2. Immigration Israel has a HUGE number of immigrants from around the

world, which have also been a financial burden. Luckily, these immigrants have also brought valuable skills

to the country, though.

The Role of the Israeli Government

in Economic Planning The Israeli government plays an important role in economic planning.

For Example, the government has been involved in agriculture production , so that they can make sure that all of the Israeli citizens are fed.

The government is the largest employer in Israel-most people work in healthcare, education, or service industries.

The Variety in IsraelIsrael has the most diversified (wide variety) economy in the Middle East.

Mining Manufacturing high-tech equipment to export Cutting and polishing diamonds (they import

rough diamonds and export the final produce-cut and finished!)

Agriculture The Service Industry

Israel’s Agriculture Israel doesn’t trade with its neighboring countries.

Israel has a lack of natural resources and a small amount of farmland, but they still grow most of their own food.

Irrigating crops requires A LOT of water. Since there is a lack of water in the Middle East, Israel has been discussing whether or not they should conserve more water by importing more food.

Israel’s Service Industry

Since Israel is a popular tourist destination (The holy city of Jerusalem), there are a lot of people that work in the service industry.

The Economy of Saudi ArabiaWhen Saudi Arabia became a nation in 1932, it was almost entirely a traditional economy.

At that time, the country was mainly just selling dates, trading camels, trading goats, or trading textiles.

But, later in the 1930’s, oil was discovered and changed everything!

Oil in Saudi ArabiaSaudi Arabia is home to 25% of all of the oil in the entire world!! This has brought the country A LOT of wealth! $$$$$

Because of the discovery of oil, the economy has become mostly a command economy, because the government controls the majority of the oil industry.

Income from oil makes up about 75% of the country’s budget.

Private Enterprises in Saudi Arabia

In the 1980’s, the Saudi’s realized that this oil wouldn’t last forever, and they are eventually going to run out.

So, the government decided that they needed to diversify their economy.

The government is encouraging private enterprise (people running their own businesses) in areas such as:

Power generationNatural Gas exploration

Saudi Arabia’s Current Economy

About 1/3 of the Saudi work force comes from other countries.

So, Saudi Arabia is trying to educate and train their own youth population, so that they are able

to acquire the necessary skills to join the workforce in Saudi Arabia.

Private Enterprises Continued…

As private enterprises continue to grow, Saudi Arabia is moving towards a mixed market economy. (but its not quite there yet-still considered a command because they government controls oil production!!)

Today, 40% of the country’s revenue (or income) comes from private businesses.

Turkey’s Economic StatusHistorically, Turkey has had a command economy.

When Turkey was established in 1932, the leader, Mustafa Kemal, believe that they government should control and build the economy.

Kemal has helped modernize Turkey.

Since the 1980’s….Since the 1980’s, Turkey has moved towards a mixed market economy.

The government invested in the country’s infrastructure:

DamsElectricity gridsPort facilitiesRailwaysroads

The Government’s Role Today

The government still plays a major role in: Industry Banking Transportation Communication

Private enterprise is growing in: Agriculture Textiles Manufacturing

Turkey exports: Coal Textiles Food to European countries

Turkey’s Ties with Europe

Turkey is located partly in Europe and in Asia.

Turkey is considered a developing nation, and is very poor compared to most European countries.

Since Turkey trades with western European countries for the most part, they are trying to join the European Union (EU).

Joining the EU would be beneficial for Turkey, because the EU would provide them with the necessary funding and loans for development.

Specialization Specialization encourages trade among countries because no country produces everything it needs.

Trade benefits both countries:

the country selling the product makes a profit

and

the country buying the product gets what it needs!

OIL: The Middle East’s Specialization

If a country has oil, there are LOTS of countries who want to buy it!! Saudi Arabia, Iran, Iraq, and Kuwait export millions of barrels of oil every day! The United States imports oil from the Middle East, because we don’t have enough oil. In turn, we export food, medicine, and raw materials to Middle Eastern countries.

Trade Barriers in the Middle East

In the past 20 years, the U.S. has had several embargoes against Iran because of their involvement with terrorism.

The United Nations (UN) placed an embargo on Iraq, after they invaded Kuwait in 1990. They only allowed Iraq to export enough oil to be able to buy food for the citizens.

By doing this, the UN hoped to force Iraq to make payments for war destruction AND destroy its nuclear, chemical, and biological weapons.

Embargoes Continued…

After the September 11th terrorist attacks on the United States in 2001, the UN (United Nations) put an arms embargo on Afghanistan.

NO members of the UN could sell any weapons to Afghanistan , because of the violent group that

was charge of their government.

Embargoes in Saudi Arabia

When Saudi Arabia wanted to join the World Trade Organization (WTO), they removed their long standing embargo against ALL trade with Israel.

Trade barriers are NOT allowed between countries of the WTO, and Israel is a member of WTO.

In 2008, Saudi Arabia lowered tariffs (taxes) on imported foods to help their citizens cope with the increase of food costs.

OPEC OPEC= the Organization of Petroleum Exporting Countries

Formed in 1960, by five oil rich countries:1. Iran2. Iraq3. Saudi Arabia4. Kuwait5. Venezuela

The purpose of OPEC is to coordinate and unify petroleum prices in order to promote stability in the world oil market and ensure a regular supply of petroleum to other countries.

OPEC sets the price and amount of oil produced by its member nations, and it has a great deal of control over the price we pay for gasoline every day!!

Before OPEC Before 1960, when OPEC was

formed, countries were producing more oil than needed.

Because of this, there was a surplus of oil, causing oil prices to drop. In turn, the oil producing countries made less money.

Once OPEC was formed, oil supplies were controlled and there was an increase in demand for oil around the world.

Because oil was in high demand, the price rose, and oil producing countries made more money!!

OPEC’s POWEROPEC has a lot of power and has used oil as a political tactic.

Example: OPEC stopped exporting oil to countries that supported Israel in the Arab-Israeli War in 1973. This caused gas shortages in many countries including the United States!