Despite concerns that hover over the finance industry, strong markets tend to remain calm. However, when it was hinted that unrest could reach Saudi Arabia, investors became worried. It is because any possibility of unrest hitting Saudi Arabia could spell major ruin.
While the problem is yet to actually be seen, uncertainties have already caused stocks to slip and move slow. Libya may not pose as much of a major problem to most investors even if there is undeniably a respectable amount of oil from this country.
There are two sides to the possibility of the threat. According to Satyajit Das, a global finance expert and author of soon-to-release book “Extreme Money: The Masters of the Universe and the Cult of Risk,” Riyadh is where the rubber is going to meet the road in the latest Middle East crisis.
Das said by the end of this year, the world economy will be very different from its present state if Saudi Arabia will not be able to handle the biggest threat it faces in 60 years. He believes investors must ask what higher than $200 crude oil would do to global economic growth while their spreadsheet column reflects $500 oil.
He thinks this is a period of unparalleled political uncertainty and that an arc of instability that start in Morocco and ends in China is taking shape and how this can upset world order is grossly underestimated by people. He believes investors are too trusting about Saudi Arabia perhaps because energy prices at present do not indicate that it may not endure the next 2 years. In Das’s observation, Saudi made itself fabulously rich at the expense of 80% of the rest of their country.
With unemployment at 40% and unaffordable food and houses, people may turn aggressive and it is uncertain how the Fahds will react to major protests. News may have reported that Saudi police fired on protesters in Qatif but Das believes the Saudis will not use their full military power against their people. They will just leave and move to their homes in London, Paris and Beverly Hills. This could be a concern because the next Saudi government may not be as pro-Western that would want to strengthen their country’s reserves as trust sign and give no regard to economics.
On a positive note, concerns about Riyadh may be too loud because Saudi protests remain economic-issues related which may be resolved by a simple allocation of the monarchy’s enormous wealth. An analysis by the Los Angeles Times explained that protesters’ view on their disagreements with the Fahds is more like a family matter, their revolutionary cause more like an assembly.
Housing, education, sports activities and a social welfare spending program of $36 billion was already announced by the Saudis. This biggest measure in history aims to help unemployed citizens and provide security for lower-income Saudis while some are for deceased borrowers’ debts write offs.
Saudi Arabia has a total of $445 billion reserves and no external debts so it can practically entice the opposition into settlement and by allowing more masses to have a say in the government.
Compared to Libya, Saudi produces twice as much oil (4 million barrels of oil daily) and sell it fast. While it’s true that it is of less quality than the sweet Libyan oil and extra capacity is like 2 million to over 6 million, the capacity is there.
What Das said about Saudi Arabia may be true but the Saudis can survive this crisis better than their neighbors. This can help cool things down including prices and global equity markets can return to normal. It may not be soon so there could still be market struggle in the near future.