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Coming end of global Islamic fundamentalism

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Lakshmisha K S
Founder - Namo Brigade, Management Consultant, Amateur Economist, Politically Conservative and believer in the supremacy of facts, NITK-Surathkal, XLRI alumnus

In the 1970s, Soviet communism was at its peak. The mighty US had been defeated at the hands of a small guerrilla force, the viet cong. Armed left wing revolutionary movements were springing up every place on earth, from Latin America to South East Asia. It almost seemed like Khrushchev’s famous quote (“Whether you like it or not, history is on our side. We will bury you.”) was about become a reality. However within the next decade, communist expansion ceased and the heart of the communist power, the soviet union collapsed.

The reason was simple and it was basic economics. Soviet collectivist socialistic economy could no longer fund the  expansionist intentions of the Politburo. One day the chicken came home to roost when Gorbachev tried limited reform to solve the underlying economic malaise with Perestroĭka and Glasnost, but the house of cards simply collapsed.

Something similar is going to transform in the coming decade and the expansionist Jihadi ideology will also see a similar collapse. If one has to understand this, one has to understand the pillars of Jihadi power globally. There are three important power center’s for the Islāmic Jihad – Saudi Arabia, Iran and Turkey. All three of them will be seriously affected by the coming technological disruption.  The advent of the electric car and the resulting insignificance of oil.  Elon Musk has single-handedly contributed to the eventual destruction of the edifice of global Jihad.

Viewed in today’s context, where oil prices are spiking on a daily basis and the opposition is planning to make it one of the main planks for the coming election, talking about the decline of oil seems counter intuitive. However in the mid to long-term, oil is poised to decline. To understand this, the below factors need to be considered.

  1. Tesla built 5,000 of its Model 3 electric sedans in a single week in the last week of June. Just looking at cars — not pickup trucks or SUVs — this would make model 3 the #9 or #10 best selling car in the USA.
  2. In April 2018 alone, Electric vehicles accounted for 8% of California’s market. This has important implications. While the electric vehicle adoption for the larger US market might be still in the “innovator” stage, there are key pockets where market is near the threshold of “early adopters” stage basis the quoted “Rogers diffusion of innovation”
  3. China is blistering in its pace of adoption of electric vehicles. Car makers have to make sure at least 10% of all vehicle produced are new energy vehicles by 2019 and 12% by 2020. 2.7% of all vehicles sold in China are new energy vehicles, making China the largest EV market in the world. China also restricts the no of licenses available for gasoline and diesel cars available for issue in major cities thus forcing consumers to opt for electric vehicles.
  4. Most people assume small hatchback when people mention about electric vehicles. However, in case of China, the revolution is in urban mass transport. China had about 99 percent of the 385,000 electric buses on the roads worldwide in 2017, accounting for 17 percent of the country’s entire fleet. Every five weeks, Chinese cities add 9,500 of the zero-emissions buses—the equivalent of London’s entire working fleet.
  5. For every 1,000 battery-powered buses on the road, about 500 barrels a day of diesel fuel will be displaced from the market, according to BNEF calculations. This year, the volume of fuel buses take off the market may rise to 279,000 barrels a day, about as much oil as Greece consumes.

The long and short of it is that we have seen what will be one of the last oil price peaks. Irrespective of Tesla and its survivability or Trump’s disdain for clean energy, the technological revolution initiated has a momentum of its own. Electric vehicle technology evolution follows more closely the exponential growth of the electronic industry rather than the linear path of the traditional auto industry, All it took was a decade for the smart phone to become the dominant communication device, it will take another decade for Electric vehicle to become the dominant mode transportation.

The current high oil price has been driven more by the supply side shocks rather than robust uptake in demand. The disruption of oil production in Libya, Venezuela and US sanctions on Iran, coupled with production cuts by OPEC+Russia is the main reason behind the jump in prices. This is primarily driven by Saudi’s need for 80$ to 100$ per barrel for the successful listing of Aramco. If you are skeptical of my forecast of decline of oil, then check out what former Saudi oil minister Sheik Ahmed Zaki Yamani is purported to have said, “The Stone Age came to an end not because we had lack of stones, and the oil age will come to an end not because we have lack of oil.”

This once in century change has wide-ranging implications across all nations, but for our purpose today let us look at the three principal states – Iran, Saudi Arabia and Turkey

Iran– Iran with a large restive population coupled with the ongoing sanctions makes it the most vulnerable of the three. The unrest which started in last December continues to simmer to this day. The renewed sanctions under Trump is already causing Iran’s economy to collapse even at oil price of $75 per barrel. Since the U.S. withdrawal from the Iranian nuclear deal, the rial has lost more than 40% of its value. European companies are leaving Iran in droves, threatening not only trade and investment but also Iran’s ability to sell oil at current volumes. Protests are turning violent day by day, with security forces even shooting at protesters protesting against water scarcity using machine guns and automatic rifles.

The protests are directed towards the clerical regime that rule Tehran. The decline in oil can be significant driver for a regime change in the next few years. The most interesting thing to note in that case is that Iran today is one of the most conservative theological societies in the world. It cannot go further theologically and in fact it is very much possible that Iran would swing the other extreme towards an anti conservative society as demonstrated by the protests against the Hijab. At the least Iran’s capability to export instability and extremism to the wider middle east will become limited.

Saudi Arabia– Saudi Arabia is highly dependent on oil, much more than the other two. However, the significant resources and relatively modest population allows it more leeway than the rest. Even then, IMF estimates that Saudi Arabia needs a oil price of $88 per barrel for balancing its budget, social and foreign commitments. That is the reason why the young Saudi prince is trying desperately to diversify his economy. This year alone, the government raised electricity and petrol prices, introduced a VAT, and required companies to pay extra fees to employ foreigners forcing thousands of foreign workers to leave the country.

Saudi has been the main progenitor Wahhabi extremism driven by Salafistic preaching. It has funded Madrassas from Indonesia to Morocco. The decline in oil prices will definitely impact all of these. Though the young prince is trying hard to divest away from oil, it will be a tough road ahead. In all likely, Saudi would be declining power who will sulk at the decline influence and power it can wield (like UK post the glorious days of its empire). It will not completely stop export of Wahhabi ideology and turn into a modern chick society but its power and ability to spread ideology will rapidly decline.

Turkey– In essence, Turkey is the sole Islāmic power who is not tied to the fortunes of oil. Turkey has a large domestic economy and a manufacturing base. It has a well-educated population and is a member of G-20 and OECD. Thus for Turkey, the decline in oil’s role is immaterial except for the positive impact on trade balances and inflation. However Turkey today is on the brink of crisis driven by the current president’s cronyism rule. The Turkish Lira continues to be one of the worst performing currency in the world. Inflation continues to be at a staggering 15% and combined with large current account deficit, some are predicting an eminent economic collapse on similar lines as Asian financial crisis.

However, it is presently hard to ascertain the implications of an economic collapse. Will the population turn even more conservative, breeding religious extremism or will they revert back to the secular ideology as envision by Ataturk. The repercussion will be felt across Europe to Middle east. It is how Turkish react which will be decisive how political Islam will pan out.

Thus there is a high chance that what we see today is the peak of global Jihadi ideology. While no one can certain of the future and it is very much possible that the same ideology might raise its ugly head in the long future (like socialism‘s come back in US). We can safely ascertain that the coming decade will be critical in the fight against this venom.

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Lakshmisha K S
Founder - Namo Brigade, Management Consultant, Amateur Economist, Politically Conservative and believer in the supremacy of facts, NITK-Surathkal, XLRI alumnus

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