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Commodity Traders Helped Spark the War in Syria, Complex Systems Theorists Say

New math shows that financial speculation caused the spike in food prices that led to war.

Complex systems theorists say that a combination of deregulated markets, commodity speculation, and food-to-fuel ethanol policies are the direct cause of the spike in food prices that led to the Arab Spring and the civil war in Syria.

A new paper, published in the Proceeding of the National Academy of Sciences, concludes that the "two sharp peaks in 2007/2008 and 2010/2011 are specifically due to investor speculation, whereas an underlying upward trend is due to increasing demand from ethanol conversion." In the new research, NECSI says it has, for the first time, "quantitatively determined that speculation caused these sharp rises in price."

In 2012, researchers affiliated with MIT demonstrated that there was a correlation between rising global food prices and the outbreak of civil unrest worldwide: Whenever prices eclipsed 210 on the UN's FAO Food Index, a measure of the monthly change in international prices of core food commodities, riots and conflict became much more likely.

That model, put forward by Yaneer Bar-Yam and the New England Complex Systems Institute, correctly predicted the Arab Spring and the spate of uprisings—some of which would eventually become civil wars—that followed. One revolution began in Syria, which has been locked in a state of brutal, unrelenting war ever since.

So, it's true enough that when food prices climb high enough, unrest follows. But NECSI and Bar-Yam were curious as to why food prices were rising, too. They knew that several factors contributed to the food price spikes that precipitated the violence—grain shortages due to weather anomalies, booming demand from China, financial speculation, and the conversion during that time of crops to ethanol, among them—but nobody knew which causes were at the root.

"We looked at the set of causes that were being discussed as potential reasons for price increases and showed mathematically that none of them could be large enough except two: corn to ethanol conversion and speculation," Yaneer Bar-Yam, NECSI's founding president, told me in an email. "We then constructed a quantitative model of the impact of those two remaining causes which fit the price behavior very accurately."

Essentially, financial speculation caused the abrupt spikes, while ethanol conversion was driving a slow background rise in food prices.

"The ethanol causes a relatively smooth increase, and speculation causes bubbles and crashes that are the peaks of prices in 2007-8 and 2010-11," Bar-Yam said. "The former coinciding with food riots around the world, and the latter with the Arab spring and, in particular, the breakdown of order in Syria."

Note that there are localized reasons for specific conflicts, too—it's been fairly well established that the drought that wracked Syria in the years leading up to its civil war (and which many argue was exacerbated by climate change) drove erstwhile farmers into urban areas, and the subsequent crowding and poverty set the stage for conflict. NECSI's model considers the global picture.

It wasn't any secret that speculators had driven up food prices in 2011—analysts finger-blasted the trend as it was unfolding, and corporations were none too pleased; Starbucks's CEO, for instance, lambasted financiers for distorting the price of coffee. But the extent and scale of the role speculators played in those food spikes hadn't been concretely and mathematically modeled. And the impact, it turns out, was large—large enough for NECSI to isolate as the prime driver of the two major food price spikes of the last ten years.

"Policy makers need to recognize the interdependence of everything globally so that what seem to be decisions about one thing will have "unintended effects,'" Bar-Yam said. "Motivated by this recognition, we need careful analysis of the impact of policies."

In particular, to alleviate the current crises, "We should restore the regulations stabilizing commodity markets that were in place from the Great Depression till their repeal in 2000." (They were swept away in the Commodities Future Modernization Act of 2000.) Secondly, "We should repeal or dramatically reduce the mandate for putting ethanol in gasoline, which has been shown to have no positive energy or environmental effect but is a major contributor to hunger worldwide (and contributed also to the riots and revolutions)."

If not, expect to see events like those in Tunisia, Egypt, Ukraine, and Syria unfold all over again.

"Without action there is essentially 100 percent probability that there will be another upwards movement of prices." And, likely, a renewed period of unrest.