An article I wrote in February, 2011.
We all remember the ‘Jasmine Revolution’, now commonly known as the ‘Arab Spring’ (imagine millions of springs violently moving about and powerfully resilient, trying to take out a few slouched up on their thrones with a golden glass of gin beside. The former the protesters, and the latter dictating there way through.) which spread its branches of unrest that flanked the entire global economy. Well today I present to you an article which goes back to the days when Middle East crisis was at its potency, unfolding it’s economic woes on oil which consequently caused drawbacks in the tourism sector.
Like a domino, tilted to one side and slowly falling to hit another, and then another, the Jasmine Revolution posed a similar dilemma, where troubles led to more troubles. And more…
The Article [which I know you’ve been dying to read after that introduction^. Or I hope you are. ]
As the Middle East crisis unfolds, political unrest in Tunisia and Egypt have triggered similar unrests in Libya as well. The Middle East is a major oil exporter, and it is estimated that 80% of the oil in this world is situated there. As the turmoil grows and becomes worse, nations around the world are afraid of an upcoming oil shock that could threaten the global economy. A shortage is bound to go underway. As oil prices surge higher, exceeding $110 per barrel (the highest price in the last two years), there have been many concerns of the impact on the growing tourism market in the region. Destinations such as Egypt, Tunisia, Libya and Algeria are particularly dependent on tourism as a huge source of aggregate revenues. Tourism alone in Egypt is about 12 percent of its GDP. The decline in tourism can lead to high unemployment in an area where there is already significant problems. This could hinder economic growth and lead to even more upheaval.
As oil prices rise around the world, the affect will result in higher airplane fuel costs. Airlines will put higher airfare costs and on a whole aggregate ticket sales will decline, due to less demand, and travelers will have a smaller incentive to travel. There will be less demand due to higher airfare ticket prices. Many small-cap airline companies could go out of business if there is no demand, and this could very well lead to a less competitive market for bigger airlines. Since oil is inelastic in demand, many tourism companies in the Middle East will have to pay higher prices for oil to transport tourists, and this could affect total revenues, as the prices of inputs increase. Many potential travelers have already cancelled their plans to travel to the Middle East already, and even if the turmoil ceases over time, many travelers may still resist traveling because of sky-high airfare prices. If political upheaval continues to spread to other major oil-producing countries, then oil prices could go higher to reach $150 per barrel (as occured in 2008) or more, significantly affecting not just airlines and tourism, but the entire global economy. This could result in a huge decline in demand, affecting airlines over the long run.