The Problem with the Economic System – The Oil Price Crisis (Part 1)

In view of the current skyrocketing oil prices and its effect on world markets, one might wonder what exactly is going on in the world?! Oil prices have reached historical and hysterical records, and yet they are still rising even now as you read through this article. There seems to be no sign of control or breakthrough over these prices any time soon, and until something is done about this, people – average and rich let alone the poor – will remain in agony and pain for a hope of a better future. What exactly is going on in the global markets, and the oil industry in particular, is far from being a mystery.

As business analysts appear on the media almost every single hour preaching their ‘economic wisdom' to the layman, it has become a common knowledge now, at least for observers, that there is a serious problem in the world economic system. This problem, as controlled by and economy running on capitalism and free markets, has become systematic and cannot be tolerated any more. Ok, this is not a call for socialism or communism, nor it is a leftist conspiracy against globalization or a call for policing the economy, but even if you were the least bit interested person in business and economy, or someone who hates numbers, charts and figures, this current crises should concern you as it affects your life directly and indirectly.

Since the beginning of this current rise in gas prices, how often have you been monitoring gas price signs on the gas station next to your home, business or even school? You probably never even noticed the sign or the gas station ever existed until you became concerned with the issue. Have you noticed that gas prices have changed your daily driving habits? Now at least, you keep looking at the gas gauge more often than you used to do before, and you probably have started to plan your refueling trips more carefully.

Oil prices today are causing greater threat to global stability because of the pressure placed on the world food market. If you live in the west or any country with a rich economy, you could feel that your dollar value has shrunk dramatically. Remember the good old days, when you used to get out of the Wal-Mart on a shopping spree with a cart full with all these goodies for less than a hundred dollars?! Well, it's getting harder today to enjoy the same old habits without feeling the pain creeping out of your heart before your pocket. Starbucks is closing 600 of its locations because common people decided to cut down on unnecessarily expenses; after all coffee is coffee anyways. In addition, whether it was Starbucks or Seven Eleven; it will now, even if you had doubts before, taste the same. For people living in countries of poor economies, the dream of immigrating up north or to the west is becoming more of a necessity than fantasy. The harsh conditions of their daily life activities and the struggle to survive in this age of global economical inflation make one wonder if we were on the verge of global uprising, or massive human disaster.

So, what is the problem then? For a Muslim, this crisis is a symptom of a greater and deeper problem that is worth investigating. It is a sign of violation to the divine order; the order of maintaining this creation of Allāh by the laws of Allāh. When Allāh created Adam to serve, and his offspring, as vicegerent on earth, angles predicted -or were inspired with knowledge- that this creation would create on earth mischief and bloodshed, but Allāh knows best that this creation would do better.

“Behold, Your Lord said to the angels: “I will create a vicegerent on earth.” They said: “Will You place therein one who will make mischief therein and shed blood? While we do celebrate Your praise and glorify Your holy (name)?” He said: “I know what you know not.” Al-Baqara 2:30.

In order to achieve his role, man was sent down to earth equipped with fundamental instruments; hearing, sight and comprehensive and affectionate heart.

“It is He Who brought you forth from the wombs of your mothers when you knew nothing; and He gave you hearing and sight and afi'dah (intelligence and affection): that ye may give thanks (to Allāh).” An-Nahl 16:78.

When the Qur'an speaks about processing thoughts and making intelligent and educated decisions, the processor presented had always been the ‘Fu'aad' (singular of afi'dah). The Fu'aad in books of Tafsir (commentary of the Qur'an) was mostly referred to as the heart itself or one of the functions of the heart. In Bukhari and Muslim, in hadith an-Nu'man ibn Bashir, the Messenger of Allāh salla Allahu alayhi wa sallam mentioned:

“Beware, in the body there is a flesh; if it is sound, the whole body is sound, and if it is corrupt, the whole body is corrupt, and behold, it is the heart.”

In contemporary business studies and self development seminars, people are taught to use both a cool mind and a warm heart when making decisions. If you don't have feelings for the intellectual decision you are making, then do not do it. Likewise, if you do not rationalize the passionate decisions you make, it might backfire and bring back detrimental results on you. The Messenger of Allāh salla Allahu alayhi wa sallam said:

“Consult your heart. Righteousness is that about which the soul feels tranquil and the heart feels tranquil, and sin is what creates restlessness in the soul and moves to and fro in the breast, even though people give you their opinion (in your favour) and continue to do so.” Reported by Imam Ahmad and ad-Darimi from hadith Wabisah ibn Ma'bad.

Many decisions in global market today are made based on intellectual and observational facts and statistics. Compassion is probably not found in the economic agenda, and does not even exist in their manuals. Consequently, few businesses, if any, would think of the human welfare -let alone the environment- while shaping their strategies. If they do, then it is for PR reasons and limited to customer service. After all, capitalism is a brutal economic system where the rich usually get richer and the poor get poorer. There is no denying the fact that capitalism has its economical virtues, but in the long term, it will definitely cause harm and damage to fragile economies of the global world system.

Today in the world of business, Muslim economists are not doing any better either. A recent study assessing the experience of Islamic financial institutions for the past fifteen years, found Islamic banks – many of which are not so Islamic – have failed to present an acceptable alternative of both a halal and effective banking system without falling into the snares of the entangled global economy. It was hard to operate in an economy based on very different mechanism form Islamic legal system. The competition was harsh, and the temptations at stake were enormous. There is a huge demand for an Islamic financial system, at least in the Muslim world, and many Muslims due to their religious adherence to the divine law, Shari'ah, hold their money back once they feel suspicious of any phony financial transaction. Many others however, are satisfied with the Islamic slogan raised by these institutions, leaving the heavenly responsibility of such dealings to the Fiqh council that legitimized this system for them. Conventional banks in the Muslim sphere have acknowledged that fact; realizing the marginal difference between them and many other so called Islamic banks, they started providing legal financial Islamic services to expand their customer base and attract religious people.

Islamic financial system, different from conventional systems, springs out from the higher objectives of Shari'ah known as Maqaasid al-Shari'ah. The consideration of universal values and public welfare are two of the main objectives of Islamic system; this consideration which is found very consistent throughout the entire system, makes the Islamic system peculiar. One of the fundamentals of the higher objectives of Islamic system is the preservation of the five human necessities, two of which are the preservation of wealth and life. In the practical provisions of Shari'ah  known as Fiqh, the law should always be consistent with these values. Economic law as known in the tradition of Islamic law has been present in books of Fiqh since the inception of this discipline.

These books of Fiqh were the foundation of Islamic traditional studies, and many Muslim scholars were considered the experts in the theory of economics for generations. Economic law intertwined with faith was particular to the Islamic system and hence had to follow the general ethics of Islamic tradition.  The Islamic system answers to a divine authority, and therefore the ethics of the system were divinely organized in order to fulfill the obligation of maintaining this wonderful creation of Allāh. If people chose to defy this divine system and tamper with its foundation, they will create a great imbalance and this disequilibrium as a result will cause a major disorder until things are put back where they should be. In today's economic system, the consideration of public welfare was left for governments and governmental agencies, leaving the free market and its natural forces to decide the ethics of engagement into the global economic system. Without divine authority overseeing the system in the global economy, man-made ethics will prevail.

Muslims have always been creative in their economic system, due to the fact that it has a deep and strong structure in religion and religious practices. The code of ethics in the Islamic economic system did not prevent Muslims from becoming economically prosperous for more than twelve hundred years in the history of their civilization. As a matter of fact the prohibition of ‘riba' or usury which is the base of today's economic banking and mortgage system, the prohibition of gambling which is the base of today's insurance industry, and some other rules in Islamic economic system were inspirational to Muslim merchants and business people. It helped create a vibrant, active and self-stimulant system that is heavily dependent on investment and capital share holding. People always owned something tangible, and their money always reflected real value, not imaginary value. There are numerous reports from the Prophet salla Allahu alayhi wa sallam encouraging people to invest; and many Fiqh rulings were enacted based on this principle. Hoarding and holding the wealth of the orphans was not recommended for fear it might be consumed by zakat; investment was highly advised to avoid this from happening. Inheritance system and its sophisticated and precised fractions were the vehicle that always protected the economy from feudalism and broke monopoly in society “in order that it may not (merely) make a circuit between the wealthy among you” al-Hashr 59:7.

In agrarian societies prior to the industrial revolution and until this present day, the land was the most precious commodity. Islamic agricultural system presented revolutionary ideas to the world contrary to those feudalistic systems crushing the middle class in Europe. One of these fundamental rules was very basic but revolutionary, leasing the land for a portion of the produce in which the landlord keeps the ownership of his land and enters a separate transaction with the worker based on the lease agreement. Moreover, in another rule set to maintain agricultural production and satisfy human instinct of capital ownership, anyone who brings a barren land back to life for a certain number of seasons would own it. Overall, the Islamic system follows a sophisticated set of guidelines; these guidelines however do not entail strictness. On the contrary, these guidelines leave a huge margin of flexibility for practical rules of Shari'ah. They only set the ground for what is permissible and what is not. As for actual practical transactions, all considered legal and acceptable, as long as they conform to these general guidelines.

Part Two

What is going wrong in the oil market?