In two significant respects, the world has changed beyond recognition in the last decade. In the Middle East, American power has crumbled and Russian power is ascendant. Meanwhile, more than 10 years after the 2008 crash, monetary policymakers have come to accept that the global economy must permanently function on extraordinarily cheap credit.
These developments, on the surface very different, are not entirely separate — though at the decade’s start, their connection would not have been visible. But in the crucial year of 2014, tumultuous events and dramatic decisions in the Middle East made monetary policy much more difficult worldwide. Each year since has felt the consequences, from which the future cannot recover.
In 2014, American power in the Middle East took a severe blow: President Obama’s hopes for regime change in Syria crashed into ISIS. The previous summer, he’d backed away from planned air strikes against Syria after the Ghouta chemical weapons attack. The anti-Assad military forces the US had supported then fell apart and ISIS seized the initiative. In 2014, ISIS forces captured large swathes of territory in Syria and Iraq, declaring itself a caliphate in June. The same month, with the Iraqi government having largely collapsed, Obama sent American forces back into Iraq, less than three years after they had completed their withdrawal. In September, he ordered air strikes against ISIS in Syria — but the American military intervention there did not rescue American power in the region.
Obama had started his presidency with the hope that he could withdraw the United States from its ‘forever wars’ in the Middle East without weakening American influence. During the 2011 ‘Arab Spring’, he had gambled that the Syrian opposition, with some external support, could remove Bashar al-Assad from power and check Iran and Hezbollah’s position in the country. Instead, 2014 saw him lead the United States into another Middle Eastern war fighting not Assad but Assad’s enemies. Once there, the US-led Global Coalition to Counter ISIS could not make its overwhelming air power decisive. Rather than the interjection of American military force weakening others, the United States appeared a bystander to Syria’s fate and Iran’s ongoing rise.
Crucially, the ineffectualness of American policy in Syria in 2014 allowed Russia to enter the Syrian war in 2015. Since then, Russia has improved its relations with regional rivals Iran and Saudi Arabia, as well as Turkey, Israel and Egypt. Concurrently, the pretence of American power in the Middle East has become hollow.
The repercussions will be felt throughout the decade that’s about to dawn. Indeed, the ebb of American influence in the Middle East has already made front pages: when, claiming a belated victory against ISIS, President Trump decided in late September to withdraw American troops from northern Syria, he effectively allowed Turkey to attack the YPG — the Kurdish militia that Ankara deems a terrorist organisation — even as he futilely urged President Erdogan to practice restraint.
The American withdrawal from Syria is refuelling the geopolitical disruption that spread out from events in the Middle East in 2014. So incensed was President Macron at Trump’s unilateral decision that ISIS had been defeated — and the opportunity the American commander-in-chief presented to Turkey — that the French leader recently raged that NATO is experiencing a “brain death” and insisted that the European Union must, consequently, develop a strategic military capability.
There can be no path back to western or European unity when NATO members divide over the Middle East; eastern European countries inside the EU depend on NATO to protect them from Russia and are not at all inclined to accept a solely European substitute.
The oil-rich Middle East also played its part in making 2014 a watershed in terms of monetary policy. The experiment of QE and zero interest rates that central banks embarked on after the 2008 crash were supposed to be emergency measures. Going into 2014, the Fed was determined that the time had finally arrived to normalise monetary policy (by definitively concluding QE and raising interest rates).
But wage stagnation and stable oil prices through early 2014 ensured there was little chance of inflation rising to the Fed’s 2% target. Then, in June 2014, oil prices began a precipitous slide that only bottomed out in early 2016. The first part of this fall went hand-in-hand with a sharp rise in the dollar. This appreciation arose in good part because, as the Fed was trying to find a way back to monetary normality, the European Central Bank was moving in the opposite direction and preparing to turn to QE.
If the euro’s woes were not enough to thwart the Fed’s bid for a monetary reset in 2014, OPEC intervened to make matters much worse. That November, the Saudi government insisted that OPEC should maintain production levels even as oil prices were falling. The accelerating decrease in prices pushed American inflation towards zero.
It also wreaked havoc in a number of oil-producing emerging market economies with knock-on effects on China, slowing American growth and causing turbulence in foreign exchange markets. The Fed’s planned monetary tightening was thwarted; it took it until December 2015 to make a single increase in interest rates of 0.25%. Four years later, American rates stand at a mere 1.75% and the last three moves have been down.
Extremely cheap credit is, for the foreseeable future, the permanent monetary backdrop of all politics in the United States and Europe. For states with their own currencies, this monetary environment makes fiscally populist politics possible. It is also creating a generation of angry savers and a volley of investor cash desperately searching the world for some venture, however intrinsically far-fetched, that will offer a return.
OPEC’s November 2014 decision escalated the geopolitical disruption in the Middle East. In seeking to improve market share rather than stabilise prices, the Saudis effectively declared war on the American shale oil industry. This move strained the US-Saudi relationship during Obama’s last years; it also proved self-defeating. The principal casualty of OPEC’s decision to let prices tumble were not producers in the North Dakota Bakken or the Texas Permian Basin but OPEC countries, including Saudi Arabia.
By September 2016, the Saudi government was forced to co-operate with Russia to push prices back up, despite having been oil rivals for decades and on opposite sides over Syria. This combination of shared oil interests and the deterioration in US-Saudi relations has propelled Russia and Saudi Arabia closer together than they have ever been, to the point where in 2017 a Saudi King went on an official visit to Moscow for the first time.
Such interconnected disruption has been a distinguishing feature of this decade. Indeed, the Trump and Brexit shocks are after-effects from the 2014 story. Without American forces in Syria and Iraq, Trump could not so easily have campaigned against ‘forever wars’ in the Middle East. Without Angela Merkel’s handling of the 2015 refugee crisis generated by the deteriorating situation in Syria, David Cameron might have been able to lead Remain to a referendum victory. Without the near complete collapse of risk in financial markets — brought about by the assumption that central bankers, at the first sniff of difficulty, will always ease monetary policy however low interest rates have to go — the British Parliament could have not have spent so much time keeping Brexit in stasis.
Western democracies are riddled with internal conflict separate from the events of 2014. But even turbulence apparently far removed from the Middle East or monetary policy is still a result the geopolitical and economic world that took shape that year.