Gunfire at Saudi protest sparks oil price spike and stocks slump

Last night the AP report of gunfire to break up a protest in the coastal city of Qatif, not far from Bahrain brought the fear of serious unrest to Saudi Arabia where a day of rage is planned today. Oil prices immediately jumped and global stock markets fell.

It is fairly predictable that the much flagged day of protest in Saudi Arabia today will be a relative failure, but the action last night caught observers by surprise. So the eyes of the world will be watching how many protestors actually emerge after Friday prayers, particularly in the cities of the Eastern Province that have already seen minor unrest.

However, the real 600-pound gorilla in this front room is not sat in Saudi Arabia. Goldman Sachs and the Abu Dhabi royal family private office (click here) reckon global surplus capacity in the oil market is down to two million barrels per day. That leaves the oil market exceptionally vulnerable to a wide range of geopolitical problems, some actually happening now and others far more likely to happen than a revolution in Saudi Arabia.

Libyan civil war

Libya and the escalating violence in that country, and the damage now being done to oil infrastructure is the more immediate worry. These are not rebel forces but amateur anarchists trying to overthrow a despot. Civil war is going to seriously damage this oil producer, and whoever wins the government is going to be far less coherent and cooperative with foreign powers.

Next door is Algeria, scene of a horrific civil war in the 90s and another minor energy producer with unrest. Swing over to the Middle East and the internal destabilisation of Iran by growing opposition could lead to a counter-revolution in this major oil supplier, mainly to India and China. Then again a crisis is brewing again in Iraq.

Revolution

So you don’t need to see Saudi Arabians out on the street to have serious worries about the short, medium and long-term outlook for energy supplies from the Middle East and North Africa. The revolution sparked by one guy setting himself on fire in Tunisia back in January is far from burned out. It is still spreading rapidly and in a way that is very hard to predict.

But by far the least likely scenario is that Arab and Iranian unrest will simply die down and the status quo ante prevail. Even less likely when you think about it is the sudden creation of a series of East European style democracies. Looking at the young men on the streets of Libya and the return of tribal wars is the new normal. Democracy is not a concept widely understood, they cannot even fire guns.

Gulf States will respond with their own mixture of handouts to the masses on the one hand, and a firm hand on the other. Bahrain is the main flashpoint. The rest of the Middle East and North Africa looks a threat both to itself and global oil supplies. Much higher oil prices may be permanent, not a spike on recent events.