March 3, 2011

Saudi Stocks Sink

From Ambrose Evans-Pritchard, never to shy away from worst-case analysis:
Saudi Arabia’s Tadawul stock index has tumbled 11pc in wild trading over the past two days, led by banks and insurers. Dubai’s bourse has hit a 7-year low.
The latest sell-off was triggered by the arrest of a Shi’ite cleric in the Kingdom’s Eastern Province after he called for democratic reforms and a constitutional monarchy. The province is home to Saudi Arabia’s aggrieved Shi’ite minority and also holds the country’s vast Ghawar oilfield, placing it at the epicentre of global crude supply.

“Unrest in this region can have fatal consequences for the world,” said JBC Energy. “The plunge on the Saudi stock exchange can be interpreted as a sign of waning trust.”

In Bahrain, the island nation’s Sunni elite holds sway over a Shi’ite majority that is denied key jobs and has a token political voice, making it a trial run for Saudi Arabia’s near-identical tensions in the Eastern Province.

Bahraini dissidents have so far been much bolder, prompting a bloody crackdown last month when at least seven people were shot by the military. The ruling family – under intense pressure from Washington to stop the killings – has since held out an olive branch to protesters and let the radical Haq leader Hassan Mushaima return from exile, yet the crisis is far from contained.

My Mushaima said on Wednesday that protesters have “the right to appeal for help from Iran” if Saudi military units interfere in the struggle. Tanks were seen crossing the 17-mile causeway from Saudi Arabia to Bahrain on Tuesday.

“These were supposed to be Bahrain’s tanks returning from Kuwait: that is not a credible story,” said Siras Abi Ali, a Gulf expert at the risk group Exclusive Analysis.

He said the outcome in Bahrain will set the template for events across the border. “There is no good outcome from this for Saudi Arabia. If Bahrain offers concessions, the Saudi Shia will demand similar concessions. If they crack down, they risk an uprising. These people do not want to live under the House of Saud,” he said.

Saudi activists have called on Facebook for a “Day of Rage” on March 11, despite the penalty of lashing for street protest. A similar call to arms in Syria fizzled because people were frightened, and the security forces nipped it in the bud. “We will be watching closely to see how many people turn up, and how far their demands go,” said Mr Abi Ali. . . .

Whatever the hopes in the West, Mr Abi Ali said the Mid-East is now in the vortex of multiple uprisings that will create turmoil for years and destabilise oil supply for a long time. “The Arab world is not going to start behaving like the Swiss,” he said. . . .
There is a raging debate over whether the Saudi oil giant Aramco can raise output by 3m bpd if needed, as claimed. While two new fields have come on stream adding 2m bpd since the 2008 oil shock, “attrition” on old fields has offset much of this. “We think they’re close to full capacity,” said one analyst.
Global spare capacity may in reality be less than 4m bpd, and perhaps as low as 2m. Meanwhile, oil demand from China alone rose by 850m bpd last year.
Here's a six month chart of the Saudi stock market from Bloomberg, followed by a five year view:

Among the Wikileaks releases are US cables from Saudi Arabia reporting the system of payments by which the rich get richer. Here an extract from a much longer story from Reuters:
When Saudi King Abdullah arrived home last week, he came bearing gifts: handouts worth $37 billion, apparently intended to placate Saudis of modest means and insulate the world's biggest oil exporter from the wave of protest sweeping the Arab world.

But some of the biggest handouts over the past two decades have gone to his own extended family, according to unpublished American diplomatic cables dating back to 1996.

The cables, obtained by WikiLeaks and reviewed by Reuters, provide remarkable insight into how much the vast royal welfare program has cost the country -- not just financially but in terms of undermining social cohesion.

Besides the huge monthly stipends that every Saudi royal receives, the cables detail various money-making schemes some royals have used to finance their lavish lifestyles over the years. Among them: siphoning off money from "off-budget" programs controlled by senior princes, sponsoring expatriate workers who then pay a small monthly fee to their royal patron and, simply, "borrowing from the banks, and not paying them back."

As long ago as 1996, U.S. officials noted that such unrestrained behavior could fuel a backlash against the Saudi elite. In the assessment of the U.S. embassy in Riyadh in a cable from that year, "of the priority issues the country faces, getting a grip on royal family excesses is at the top."

A 2007 cable showed that King Abdullah has made changes since taking the throne six years ago, but recent turmoil in the Middle East underlines the deep-seated resentment about economic disparities and corruption in the region.

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