Since our last commentary on the events in the Middle East, turmoil in the region has not slowed down. Libya has captured most of the world’s attention due to the intervention of the United States (in overt and covert manners) with the assistance of NATO forces in an attempt to halt what has become essentially a civil war in the country. Clashes between security forces and protestors in Syria have become more commonplace while western nations are attempting to devise a scenario for Mr. Saleh to leave Yemen. With developments occurring in a non-stop fashion forging an overall assessment for the Middle East is extremely difficult, not that the region could be painted with a broad stroke to begin with.

Late last week however a piece entitled “The New Cold War” in the Wall St. Journal took the approach of offering this larger picture of the region. The article’s focus was on the competing interests between Saudi Arabia and Iran. It’s a worthy read and it inspired us to use our time for this commentary on evaluating the region as a whole as opposed to the events in one single country as we previously have done.

To start with, the tensions between Saudi Arabia and Iran are nothing “new,” as the authors describe in their piece. The rift between Sunni and Shia Muslims dates back centuries. More recently, since the Islamic Revolution in February 1979, Sunni regimes have been uncomfortable with the government in Iran due to the latter’s desire to export revolutionary and Islamic fervor throughout the Middle East, and hence the Iran-Iraq war in the early 80s. Since then the chess game has manifested in countries such as Lebanon, the Palestinian territories, the Gulf, and as far away as Morocco. With the government in Lebanon recently having collapsed, the ousting of Mubarak in Egypt, and the current pressure on Assad in Syria, calculations in Riyadh and Tehran keep one eye on the afflicted country while another eye on their counterpart with suspicion of meddling and competitive interference.

Yet our most pressing reaction to reading this article and regional description is that the authors miss two enormous elements in what to watch for in the area. First, the general premise of the article, at least in our interpretation of it, was how the current Arab uprisings would affect these proxy agendas of Iran and Saudi Arabia. We believe this is fundamentally the wrong question to ask. What should be questioned is how the current protests throughout the Arab world will affect these two specific countries within their own border.

In Iran the protests that engulfed the streets of the country following the election results of June 2009 made headlines around the world as people began to realize the chasm between the Iranian people and the regime. Since then, much less attention has been paid to the Persian nation’s political developments and coverage has focused squarely in on its nuclear activities. This is a great misfortune. Schisms among the powerful, conservative institutions continue to blossom. Over the weekend the Supreme Leader overruled President Ahmadinijad regarding the resignation of the Intelligence Minister and in a televised speech proclaimed that the clerics were the country’s supreme political entity. It was not the first time the Supreme Leader has contested the policies or procedures of the President.

Among the population protests have continued. Tales of police brutality and torture are numerous as the regime seeks to weed out dissenters, even having arrested the daughter of former President Rafsanjani. Other protests have occurred over a stoning sentence handed to a woman on the charge of adultery. The Revolutionary Guards, the group that is armed and tasked to protect the Islamic Revolution, have carved out the national economy to work for its own prosperity and interests. Iranian experts estimate that the institution itself controls over 30% of the economy through a variety of entities and in a number of sectors. When protests broke out in Cairo’s Tahrir Square the regime and Council hailed them as a victory for the Islamic Revolution, twisting the events into a narrative of anti-Western sentiment, while ignoring elements such as greater civil rights, economic opportunities, inequalities, and the lack of religious fundamentalism that were existent in Egypt. Shortly thereafter protests broke out in Tehran calling for the resignation of the Ayatollah.

Iran possesses many of the ingredients that have been documented to stir the revolutionary pot in other countries in the Middle East. Iran is a classic example of the youth bulge phenomenon, where a high portion of the population is young and unable to find work. The economy is in shambles despite substantial oil reserves; production has never been able to match production from over 30 years ago in part due to global sanctions. The economy is highly distorted and subsidized, creating budgetary and inflationary problems. Earlier this year protests broke out against the President for having to reduce subsidy support on fuel. Protests that successfully remove repressive and incompetent leaders is the last thing the regime in Iran should want to see. Even if the government is too entrenched to be overthrown, further domestic stability will not help a country attract much needed foreign investment to develop gas, oil and manufacturing sectors. Kia Motors pulled out of the country last fall due to the new sanctions regime and not wanting to be seen as aiding the government.

Concerns surrounding Saudi Arabia are better documented and more clear-cut. In the minds of analysts and markets, the Kingdom drives the oil market. But with severe protests in Bahrain next door, the royal family and energy consumers are concerned about contagion, especially since the eastern portion of Saudi Arabia possesses a sizeable Shia population who often feel repressed by their Sunni rulers. An additional pressure point comes from the south where the most recent news is that President Saleh has agreed to leave if he and his family are granted immunity. Yemen is one of the most unstable and disastrous places on earth. One of al-Qaeda’s strongest branches resides in Yemen, and has been known to launch attacks into Saudi Arabia or employ other tactics to inspire the minority Shia in the Kingdom to rise up against the government. As bad as Yemen is currently, some analysts believe removing Saleh and his party of power could be a more devastating scenario given the lack of governing experience from other factions.

To pacify the country, the Saudi royal family launched a massive subsidy package of $36 billion in February. Saudi Arabia does offer high living standards for its people but the rigid and closed nature of the royal family is an element conducive to resistance. Moreover, the line of succession is quite murky and given the age of the king a vacuum of certainty regarding a royal takeover could be filled by the fervor of protestors.

Our second large reaction was that any projection of regional politics in the Middle East must include an analysis of Turkey, and it is this absence that is most startling about the article. Turkey has become the political leader and the most respected voice in the region. It is a well- established democracy (although it has quite a bit of work to do in areas such as press freedom), has taken up the mantle of the Palestinian cause, managed relations well with a number of different parties, and solidified an economy that was tormented by inflation in the 90s and early 2000s. From the European Union to Russia, Syria, and Lebanon, Turkey has positioned herself in a versatile and flexible manner that allows balance in its foreign and economic policies. It has built its wealth not by digging riches out of the ground but by expanding its manufacturing base and improving the quality of its human capital for the service industry. The following figures are telling us some the stories surrounding Turkey’s development.

Figure 1: GDP Per Capita: 1986-2009, World Bank

Figure 2: FDI, World Bank

Figure 3: Services Value Added % GDP, World Bank

These are just a few charts demonstrating Turkey’s significant standing in the Middle East, particularly compared to other significant actors in the region. Turkey has risen to such a high position in the Middle East through patiently developing fundamentals, productive capacity, education, reforms, and substantial gains in institutional development. We believe other countries in the Middle East have noticed.

Let’s think about it. As Brookings Institute reported, Tunisia was in the Top 10 globally in improvements in Human Development Indicators and Egypt closely followed. Significant improvements were made in education and health services, yet these were not enough for either country to abandon its effort to oust their respective rulers. Rather the improvements in democratization could not keep pace with those in socioeconomic development, leaving an unbalanced and restless society. Turkey’s progress over the past decade or so has been more balanced and provides more comprehensive opportunities for obtaining a better life. Thus, to the dismay of the Ayatolloah in Iran we would not be surprised if those who took to the streets in Tunisia and Cairo hail the Turkish model over that of the Persian one.