‘Fundamental uncertainty’: Keynesian economics and COVID-19

With the colossal scale of the crises looming over the global economy, perhaps now is as crucial a time as ever to revisit the Keynesian notion of ‘fundamental uncertainty’

‘By uncertain knowledge,’ wrote John Maynard Keynes in 1921, ‘I do not mean merely to distinguish what is known for certain from what is only probable…There is no scientific basis to form any calculable probability whatsoever. We simply do not know.’ Upon reading these words (written in the middle of the worst influenza pandemic in history, the Spanish Influenza!) in our contemporary setting, there is a pertinent case to be made that the global crisis that is taking the world by a storm necessitates a re-examination of Keynes’ foundational concept of ‘fundamental uncertainty.’ Following the outbreak of the COVID-19 pandemic and its mammoth economic consequences for the global economy, a string of crises erupted that have not only rattled the foundational basis of the incumbent liberal world order but is, according to professor of economics Timofey V. Bordachev, ‘living its last days.’ Alain de Benoist describes the pandemic as a ‘catalyst’ with regard to the decline and disintegration of this liberal world order, arguing that this new economic and social crisis could give rise to a new financial crisis, one that ‘has been expected for years.’ 

Of all the unprecedented financial blows of 2020, the news concerning the extraordinary decline in global economic activity leading to the United States’ oil prices falling below a jaw-dropping $0 for the first time in history is set to be one of the most unprecedented by-products of this pandemic. Termed one of the most debilitating quarters for oil prices in the history of the ‘oil revolution,’ this recent development comes in the midst of the oil-price ‘war’ initiated by Saudi Arabia against Russia in early March. A sharp decline in factory output and transportation demands following the early stages of the 2019-2020 COVID-19 pandemic precipitated a decrease in oil demands, leading oil prices to plummet.

The Iran-Saudi standoff and the future of the Middle East peace process

Russia is fast emerging as a major power broker in the Middle East.

The world reeled from shock after two successive missile attacks targeted the Abqaiq oil facility and the Khurais oilfield in the Saudi desert last month. The real drama unfolded the morning after – thick smoke billowed from the wreckage, blotting out the early morning sun, and with it perhaps any hopes of restoring some amount of normality to Iranian-Saudi relations, at least for the foreseeable future. Over half of all the crude oil excavated in the Saudi kingdom is processed at Abqaiq. It comes as no surprise, therefore, that crude oil prices surged by 20 percent as global markets grappled with the biggest oil supply shock in decades. The Kingdom’s oil production is already running a historic low as its natural reserves face depletion, and the attacks at Abqaiq and Khurais managed to cut down global oil supply by a further 6 percent. Saudi Arabia called the September 14 attacks an act of war, and Iran stands accused of masterminding the offensive, a charge it vehemently denies. 

Iranian Foreign Minister Javad Zarif condemned what he called Saudi attempts to provoke Iran into a full-blown military confrontation. The country remains economically besieged; heavily sanctioned by the US, with inflation in the country hitting new highs every week under the Trump administration’s “maximum pressure” strategy. Zarif holds the Houthi rebels responsible for the attack, based on a statement released by the rebel faction in Yemen. Nonetheless, Tehran has not been able to produce any concrete evidence apropos of the claim. The Saudis, meanwhile, have alleged Iranian involvement after examining misfired missiles that they claim were sourced from Iran. Less than a month after the attacks on the Aramco facilities, an Iranian oil tanker, the Sabiti, was attacked while cruising the Red Sea, just off the coast of Jeddah, causing oil prices in London to surge to 60 US dollars a barrel.

The Yemen Question?

The turning point was when the Houthis took control of Sanaa, the capital in 2014 and from there they started to expand to the west and east of Yemen.

In order to fully understand the current state of Yemen, it is important that we zoom into history and try analyzing what went wrong and where. For much of the past century, the country has been divided into The Yemen Arab Republic in the north and People’s Democratic Republic of Yemen in the south. Ottoman and British rule managed to keep the two separated but in 1990 these were unified under one flag and this was the beginning of crisis. If we look at the cultural and political divisions, these two parts are way different in two aspects. For almost a thousand years, the north  had been under the theocratic rule of the Zaidi Shiites (the Zaidi sect of Islam is almost wholly present in Yemen and they believe that Muslims should only be ruled by the Imams – those who are the descendants to the Prophet), as opposed to this, the south was transformed from a scratch by the British during their rule. These differences took a conflicting turn after the two were united in 1990.

Looking at the religious division more closely the Zaidi Shiites predominate the north, with a minority Ismaili sect, whereas, the Sunni sect of Islam dominates elsewhere. Sectarianism was not really a problem until recently. Previously, a more tolerant society prevailed. Indeed, various exchanges between the two communities had been observed and inter-community marriages were normal and considered a routine in Yemen. However, the rise of political Islam led to an upsurge of tensions and with the emergence of radicalism, groups like Muslim Brotherhood and Zaidi Houthis emerged and expanded. With the spread of Salafi ideology in the predominant Zaidi areas, the expansion of Houthis was needed. Initially Houthis emerged as a theological revivalist movement in 2004 fearing the spread of Salafi ideology in the dominant Shiite areas.