The immediate impact has been an increase in political and economic risks in the region. Due to the elevated risk and contagion, stock markets worldwide have declined, and stock prices of companies and investment funds with exposure to these countries have lost value. The S&P has already downgraded the sovereign rating of Bahrain, and the credit default spreads have widened for most Gulf countries, increasing the cost of credit in the region.

Political uncertainty and supply concerns have moved oil prices up, and any continued upward trend in oil prices will generate inflation pressures worldwide. In the short-term, the unrest will have a negative impact on European, Asian and U.S. companies that have substantial exports and direct investments in the region. The Arab world plays a vital economic role by employing millions of expatriates. There are already signs of expatriates leaving and further turmoil could result in an exodus of foreign workers. A resulting decline in foreign remittances will result in a severe economic blow to many developing and poor countries in the region and in Asia. In the medium-term, the current turmoil is likely to slow trade and investment flows resulting in lower credit and economic growth in the affected countries; however, countries such as Abu Dhabi and Dubai are likely to benefit from positive spillover effects such as increased deposit flows and diversion of business and tourism from unstable countries such as Egypt and Bahrain.

What is happening in the Arab world is truly remarkable and uplifting. In the long run, political and economic reforms, if carried out successfully, will benefit both the Gulf and the world through increased trade, employment and investment flows. Political reforms are just a first step, but they do not necessarily provide solutions to poverty, unemployment, cost of living, corruption and other economic grievances. While we should be optimistic, translating political reforms into meaningful economic progress is a long and difficult process; hence, more political, economic and financial volatility is inevitable as these countries go through an essential and historic metamorphosis.

Lalith Samarakoon is an associate professor in the Opus College of Business and financial economist with expertise in emerging and frontier financial markets.

In 1971, Chinese leader Zhou Enlai famously responded to a question about the impact of the 1789 French Revolution with the comment, “It’s too soon to tell.” I view this quotation as reflective of a useful perspective when considering complex, dramatic, current events.

My field – risk management – cautions against the rush to simplify and explain complex events. This might seem counterintuitive at first blush, as quickly assessing a situation would appear to be an important risk management skill; however, there are at least two potential problems: 1) complex situations are – well – complex, and quick responses may produce bad decisions, and 2) hasty responses and actions can “anchor” our judgments in such a way that, even as we progress and modify our views, that initial response casts a continuing, harmful influence on our future efforts.

Ideally, of course, we would hope to be prepared for such events, which would give us a greater capacity to understand fast-moving events, and to react quickly and responsively. But we also have to have maturity to acknowledge situations where we are not prepared and to fight the impulse to wade into a situation without thinking. I believe current events in the Middle East present us with such a situation.

I fear I have given a response, but not an answer; nevertheless, I believe it is immensely difficult (and maybe harmful) to draw conclusions at this point in time. We want to be alert and responsive, but we also want to fight the all-too-human instinct to jump to conclusions.

Let me close on a different note. We Americans have a shown a real propensity lately for viewing the Muslim world as a large undifferentiated mass and, as events are showing, nothing could be further from the truth. Natural resource distribution is widely different from country to country; geography is different; cultures and beliefs are different; political issues are different. We are being presented, I would suggest, with an opportunity to reassess our existing views of this important region of the world.

Peter C. Young is a professor and E.W. Blanch Senior Chair in Risk Management in the Opus College of Business.

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