ME conflict, non-neoliberal policy, and mission-oriented approach

Now that a pause has come in the Middle East conflict in terms of a two-week ceasefire reached, with significant role played by Pakistan in mediation towards this ceasefire, and in terms of hosting talks over the weekend in Islamabad for hopefully reaching a durable peace settlement in the region.

The ceasefire stands on fragile grounds, as strikes on Lebanon continue by Israel, which was not to happen, as one of the pre-requisites of the ceasefire. An April 8, Bloomberg published article ‘Vance to Lead Iran Talks as Tehran Says Ceasefire Violated’ pointed out in this regard, ‘The White House announced the US would hold direct talks with Iran even as continued fighting in the Middle East, punctuated by Israeli strikes in Lebanon, threatened to derail the fragile ceasefire in the six-week conflict. Press Secretary Karoline Leavitt said Vice President JD Vance will lead a delegation to Islamabad, which would include special envoy Steve Witkoff and Jared Kushner.

The first round of talks is set for Saturday morning local time, even as the Strait of Hormuz remained largely closed as of Thursday morning, falling short of a key US condition for the ceasefire.’

More than an immediate impact in terms of safeguarding life, initially opening of the Strait of Hormuz – before it got closed due to the violation of ceasefire by Israel as indicated above – and the positive sentiment produced by the ceasefire overall resulted, for instance, in Brent Crude coming down below USD 100 per barrel; and as reported by Bloomberg being a little more than USD 97 per barrel on Thursday. Highlighting more broad implication of the ceasefire, an April 8, Guardian published article ‘Ceasefire brings relief to financial markets – but it is far from absolute’ indicated the following: ‘A plunge in the oil price, stock market rally and renewed hopes for the global economic outlook.

After the announcement of a two-week ceasefire in the Iran war, the relief in financial markets was palpable. But it is far from absolute. …Even after the more than 10% fall in the oil price on Wednesday, Brent crude remains above $90 a barrel – significantly higher than before the start of the war, when the global oil benchmark traded below $73 a barrel.’ Now that day-to-day haemorrhaging has stopped in terms of deep damage being done to economy – in addition to a lot of loss to life, yet that continues quite unabated in the case of attacks by Israel on Lebanon –it may give some breather to take stock of the immense magnitude, and unprecedented nature of what has already happened.

An April 7, Project Syndicate (PS) published article ‘The coming inflation-deflation whipsaw’, which got published just before the ceasefire was announced, pointed out, for instance, ‘The US-Israeli war with Iran has disrupted transit through the Strait of Hormuz, which generally accounts for around 20% of the world’s 100 million barrels in daily demand.

That makes this the largest oil-supply shock in the history of the global oil market. By comparison, the 1973 Arab oil embargo, the 1990 Gulf War, and the 2022 Russian invasion of Ukraine cut global supply by 7%, 6.5%, and 3%, respectively. Not only have oil and natural gas prices risen well over 30% since the war began, but the shock has extended across the commodity complex, hitting everything from fertilizer (30% of which passes through the Strait) and the polyethylene (50%) used in plastics to helium (about 33%), a critical input for semiconductors, and thus for the AI revolution. Global shipping and insurance costs have also spiked, making the Iran war the biggest threat to maritime trade and supply chains since COVID-19. And because physical infrastructure is being destroyed, the effects could prove more persistent. Qatar esti mates that rebuilding certain liquefied natural gas facilities could take as long as five years.’

It needs to be pointed out here that the mission-oriented approach adopted by Pakistan on the foreign policy front allowed leveraging intention for peace into tangible outcomes. Same purpose-driven spirit needs to transcend to the economic sphere, not just for the country but globally as well in the shape of reinvigorated multilateralism.

A wholesome approach is needed to greening the economy for individual countries, and globally, covering sectors from economy to environment to epidemiology, working together, while the misgivings of the neoliberal, and austerity – aggregate demand-squeeze – policies need to be internalized by both domestic policymakers to treasuries and central banks of major political, and economic powerhouse capitals globally.

The current moment should form the needed watershed moment where such deep reflection is made. Long overdue, a new-normal should not miss another crossroad, and finally begin its meaningful journey, given too many monumental moments have gone begging for such retrospection – from Global Financial Crisis 2007-08 to Covid-19 pandemic to Ukraine War to deep Gaza miseries to huge climate catastrophes in between.

The green transition should take place to significantly reduce the dread levels of deep carbon footprint, and to meaningfully diminish, among other significant reasons, the possible oil-based reasons for conflicts.

The situation at hand is quite dismal with regard to the huge imprint of oil on economy – an important determinant for politics and diplomacy – as an April 6, ‘Foreign Affairs’ published article ‘The Iran shock’ pointed out: ‘Now, however, uncomfortable realities have overtaken the optimism of earlier decades. For one, the world still overwhelmingly runs on fossil fuels.

Despite the significant expansion of clean energy, fossil fuels continue to supply more than 80 percent of global energy because demand continues to grow. And although oil markets are more integrated and the global economy is less oil-intensive than before, shocks still happen often and can be painful. Because oil is traded on a global market, price increases affect the price at the pump for everyone, regardless of whether a country is a net importer or exporter.’

The same article highlighted the impact of shocks on LNG, and in terms of energy vulnerabilities for US, as ‘Shocks to natural gas supply, too, reverberate across Asia and Europe, although the United States is largely insulated from them because there is a fixed amount of infrastructure to export U.S. liquefied natural gas and it tends to run at full capacity, American producers cannot turn additional gas into LNG to sell overseas at higher prices, and they must sell it at lower domestic prices instead.

For the United States, the recent crisis has underscored that energy superpower status does not eliminate vulnerability to geopolitical upheaval. Even though the country produces more crude and oil products than it consumes, it remains tied to global markets. American producers may benefit from higher prices, but households and energy-intensive industries do not.’

Rightly praising this spirited effort for peace by Pakistan, an April 8 Bloomberg published article ‘Pakistan’s Mediation of US-Iran Ceasefire Shows Central Role in Global Politics’ highlighted this mission-oriented approach as, ‘The developments show the extent to which Pakistan has become a central player in helping to de-escalate a conflict that has killed thousands and triggered an energy crisis that threatens even broader economic destruction.

Facing its own fuel shortages, nuclear-armed Pakistan has leveraged its close ties with Saudi Arabia, Iran, the US and China to provide a communication channel between the warring parties, passing messages between both sides over the past few weeks. …“What stands out is Pakistan’s repositioning from a peripheral actor to a credible intermediary capable of convening adversaries,” said Farwa Aamer, director South Asia Initiatives at the Asia Society Policy Institute in New York.’

Now this sense of sophistication, and grit needs to penetrate the elite capture that keeps the country stuck with self-defeating (misguided) neoliberal, and austerity policy mind-set of multilateral policy frameworks – for instance, of International Monetary Fund (IMF), and World Bank – and domestic ‘Chicago boys’-styled policymakers.

Standing of a country in the comity of nations requires strong, sustainable footing on economic, political, and diplomatic grounds, all working for internal strength, and collective effort, and to reflect that meaningful relationships abroad. Such an effort requires a mission-oriented approach in normal times, and all the more in a world of polycrisis, to turn the tide against selfish, extractive, short-sighted interests of individual politico-economic elites coming together in an oligarchic way – like the ‘optimates’ in the Roman empire – and their connivers in the shape of multitudes of impoverished people relying more on these oligarchs for sustaining their economic needs, and not the state, which these elite have weakened in terms of delivering educational, and economic empowerment for instance.

In addition, the Middle East conflict puts into focus dealing with the extent of role of public sector in managing the economy, as weak level of economic resilience, especially in terms of preparedness of public sector to effectively deliver, especially with regard to dealing with shocks.

Having Traditionally, policy debates are apparently like old wine in new bottle in the country, with ‘Chicago boys’-styled policymakers thronging policy halls across governments, and being in high demand in media interview/discussion rooms, as if to overall maintain, and if possible, to perpetuate the neoliberal mind-set as the underlying requirement for continuation of elite capture.

There is virtually very little democracy of opinion when it comes to places where it actually matters for policy. Instead, ‘manufacturing consent’ as an effective antidote – but not indefinitely though as human consciousness of freedom kicks in ultimately – through the use of neoliberal, and austerity policies to deter the so called ‘crisis of democracy’ whereby, otherwise, demos effectively assuming power to hold accountable their representatives by being better educated, and more economically empowered.

Yet, the irony is that over decades, while the elites amass money at home, and in safe havens abroad, the walls of neoliberal, and austerity assault built to guard this extraction, in fact, continue to weaken the foundations of those economic, and political structures, otherwise working hand in glove and, in turn, hasten the pace of existential threats like climate change crisis.

Neoliberal assault has diminished the role and capacity of government. On one hand, it has weakened the economic institutional capacity – the ministries of finance, planning, etc. – the underlying organizations, including the state-owned enterprises, and productive and allocative capacities of the markets to deliver reasonably well price discovery.

On the other hand, austerity policies causing over-board suppression of aggregate demand and by limiting investment to enhance aggregate supply have diminished political voice by keeping the demos educationally, and economically weak.

A dangerous ‘inertia’ is being created, whereby as a self-fulfilling prophecy, first through the application of (misguided) neoliberal, and austerity policies, the performance of public sector is diminished, and then the argument is given that since it cannot incentivize and regulate markets efficiently, so the best thing is to privatize, and deregulate! Yet, this second-best formulation of economic sectors – both at the level of hierarchical organization/firm/entrepreneur, and markets – is presented as the only possibility, while productive and allocative efficiency requires a better functioning government safeguarding public interest from over-board profit motive of the private sector, manifesting for instance in the shape of sellers’ inflation with heightened chances of this happening in the wake of shocks, as currently is the case in the wake of Middle East conflict.

Hence, for instance, voices from some policymakers in recent days have called for deregulation of the market of oil. Thinking through, it becomes quite clear that given a developing country context of Pakistan, where economic institutional quality and regulation are weak to start with, and given high level of information asymmetries, and high transaction costs, not to mention likelihood of sellers’ inflation and price gouging, particularly during a shock situation like that produced by the Middle East conflict, requires the presence of public sector in price discovery, including rationalizing of profit margins.

At the same time, while price distortions should be reduced to the minimum, but here too the focus should be primarily on removing this distortion produced by application of consumption taxes/levies, while subsidy provision should be seen in the light of meeting broader social protection targets and minimizing the impact of price shock, and its negative implications for overall macroeconomic stability, and economic growth.

In this regard, the importance of placing price controls to bring greater sustainability and predictability in the economy in terms of cost structures for domestic production, and exports, and for protecting purchasing power of consumers, given wages increase in general at a much slower pace than inflation, and particularly spikes in inflation due to such heavy shocks as increase in oil prices, which feed into every sector of the economy, in particular in terms of food prices, and transportation rents.

The successful implementation of ‘dual-track’ pricing in China, for instance, serves as an important model for putting in place price controls for commodities important for economy in terms of protecting purchasing power of domestic consumers, and in ensuring that competitiveness of exports is not significantly eroded due to weak regulation of markets.

Hence, instead of deregulation, important sectors of the economy, in terms of consequences indicated above – although, perhaps not an exhaustive list of consequences, and there may be many more – require active participation of the public sector, whereby it should ‘co-create’ markets in collaboration with the private sector.

Copyright Business Recorder, 2026