On Nov. 13, the Jordanian government made an announcement to cut fuel subsidies, triggering yet another round of protests in the Arab region and further accentuating the people’s political discontent and the nation’s economic challenges.
This may seem like a reverie, due to the government’s decision to back away from subsidy cuts in September, but make no mistake – this is real for the kingdom and its people. As they did last month, the Muslim Brotherhood’s Islamic Action Front (IAF) and leftist parties rallied thousands of demonstrators against government action and economic dismay.
Due to pressure from the International Monetary Fund (IMF) to cut down public spending and increase commodity prices, combined with the need for Jordan to secure their expected $2.05 billion loan from the IMF, the Jordanian government is forced to pass down the cost of oil subsidies to the public – a dreaded policy change which was destined to happen.
The 33 to 55 percent rise in the price of fuel will be devastating to working families. Unfortunately, much like the U.S., the price increase affects poor and rural household expenses disproportionately more than any other group. (14 percent of Jordan’s population is below the poverty line). Not to mention the indirect impact of rising fuel prices – protests, famine, war and rising food prices due to transportation costs, which will become more evident in the coming weeks.
Jordan, one of the smallest economies in the Middle East, imports more than 90 percent of its oil and relies on foreign investment and grants to support public finances, making it even more sensitive to the volatile price of oil. Global crude oil prices, which depend on a myriad of factors such as increased demand in China and India, spare oil capacity in Saudi Arabia and in Jordan’s case, repeated bomb attacks against a gas pipeline in Egypt, are uncontrollable factors that significantly impact fuel prices.
The abandonment and lack of support, mainly by the Gulf States, further accentuates Jordan’s dire financial condition. Amman is reported to have only received $250 million of the $5 billion promised by the Gulf Cooperation Council (GCC) over the course of five years, leaving it with a growing national deficit and an inability to sustain government spending.
We mustn’t overlook the value to the U.S. in maintaining the peaceful state of Jordan. Its alliance with western states, peace treaty with Israel and its moderate voice in the region make it an invaluable ally. Although the Muslim Brotherhood remains a small minority in the country, we should not underestimate the slow but perhaps impactful influence this has or will have on the people, government policy and national security.
It is evident that the world’s oil dependency has much farther reaching implications and consequences than is immediately apparent. But, the global tone brings to light the unintended consequences of the world’s oil dependency and the desperate need for the world to shift its reliance on oil.