When we first reported on the Arab Spring, we noted the role that food price inflation played in various uprisings (Lessons From Egypt):
For students of financial terrorism and economic warfare, there are two primary takeaways:
1) The trigger to the unrest was food prices. It has been widely reported that food inflation was a if not the primary factor behind the initial unrest. Egyptian households spend about 40% of their budget on food and food prices increased 20% in the past year. Corn prices shot up 90% and wheat slightly less.
2) Speculation played a role in higher food prices. Certainly the global monetary inflation made this possible. Another factor has been economic progress in emerging markets whereby people have been improving the quality and quantity of their diets. Both of these have justified higher prices. Speculation has been a factor on the margin. As we know, however, the marginal factors are generally the ones that create a tipping point. My sources tell me that this has been the case so far and that speculative interest in food is growing,
Both of the takeaways are factual.There should be no doubt that there was a serious economic component behind the events in Egypt. The question then becomes whether or not additional speculation on food prices could be used as a geopolitical lever. Based on our research, the answer is an unequivocal yes.
The New England Complex Systems Institute has published research that validates our view. We found it when we were studying their evidence of bear market manipulation. Their findings on the correlation between food prices and riots as well as how speculators have caused food price increases are equally compelling. The chart below the quote shows food prices compared to recent riot activity.
A new study shows that the timing of outbreaks of violence rocking North Africa and the Middle East is linked to global food prices.
Today's headlines explode with stories of failed political systems, harsh regimes, and denial of rights underlying riots and warfare. The authors, however, point to rising food prices as a key factor too–not only in assessing the aftermath but in predicting future times of unrest.
The study, titled "The Food Crises and Political Instability in North Africa and the Middle East," is by Marco Lagi, Karla Bertrand and Yaneer-Bar-Yam of the New England Complex Systems Institute.
Using detailed charts showing data from the FAO Food Price Index and the timing of the riots, the authors were able to demonstrate how food prices have a direct link to the tipping points of unrest and upheaval.
The authors also criticize the deregulation of commodities markets in the US as contributing to the rise in food prices.
The authors issued a stern warning that if food prices remain high, disturbances will continue. Averting further crises this year and next requires quick and concerted action by policy makers, they added.
So what's the point?
If you understand that rapidly rising food prices can destabilize a society, and you know how to drive prices higher through speculative market activity, you can essentially trigger a riot via economic means alone. This is Economic Warfare.
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