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The mass exodus of hundreds of thousands of laid-off migrant workers --mainly Egyptians, Palestinians and Pakistanis--from the Persian Gulf could overtax their native lands and stir political unrest. While singling out no particular country, Secretary of State Shultz cautioned last week, "History teaches that nations in deep economic distress are more vulnerable to political instability, to the simplistic appeals of demagogues who preach siren songs of war and confrontation as a diversion from home."
Shultz made the statement at a Washington lunch for Israel's Peres, whose warnings of increased instability in the Middle East are taken seriously in the capital. On the one hand, Israeli officials say their country has been strengthened diplomatically by the oil glut. The declining petropower of the Arab countries has emboldened many Third World oil-using nations to renew contacts with Israel broken off during the 1974 oil crisis. But closer to home, some Israeli officials see increased potential for an attack by Syria, which has fallen on hard times partly because beleaguered Iran has cut off its subsidies to the Damascus regime.
In his new "Marshall Plan," Peres suggests that the major beneficiaries of the oil glut should ante up $20 billion to $30 billion for a fund to spur development in Egypt, Jordan, Lebanon, Syria and Israel. The proposal, even if not considered utopian, would face many obstacles, including the U.S. need to cut its budget and the reluctance of Arab countries, which have so far refused to join a program initiated by Israel.
Another strategic question is how the Soviet Union will respond to the loss of revenue from its oil exports to Europe and Japan. Sales of about 1.3 million bbl. a day last year provided the Kremlin with about 60% of the currency it spent on Western grain and technology. The Soviets could retaliate by trying to increase their influence over troubled oil producers like Libya. Soviet spokesmen now routinely characterize the oil-price decline as a conspiracy by "Western monopolists."
The most immediate threat to the U.S. is financial. Bankers fear a default by hard-pressed oil producers, notably Mexico, which owes $97 billion, or Nigeria, a $17 billion debtor. Mexico alone owes about $70 billion to U.S. institutions, including Chase Manhattan and Bank of America. The banks, and probably the whole U.S. financial system, would be staggered if Mexico were to walk away from its debts.
In recent weeks, though, bad loans in the U.S. oil patch have joined the long-standing Mexican problem at the top of bankers' worry lists. Energy loans gone sour have already forced the federal bailout of one major U.S. bank, Continental Illinois, in 1984, and the latest surge of bankruptcies in the energy belt could at least cause some smaller institutions to collapse. The top U.S. banks have an estimated $40 billion in oil and natural gas loans on their books, and more than half of the money has been lent to vulnerable small companies.