Possible Saudi unrest and oil prices worry National Bank of Abu Dhabi forum

Concern over the possible spreading of unrest to the Eastern Province of Saudi Arabia, with days of protest now slated for 11th and 20th March dominated discussions at the 3rd Annual Financial Markets Forum held at The Yas Hotel in Abu Dhabi today, with soaring oil prices at the back of everybody’s mind.

Black Swan author Nassim Taleb took the stage alongside veteran investor Jim Rogers who famously called the bottom of the 20-year commodities bear market within a few months and has led the bull charge ever since.

Oil price threat

Mr Rogers noted that if regime change ‘closed the Saudi oilfields for sometime, the oil price would go through the roof, though that would still leave places like Abu Dhabi making lots of money’. The Eastern Provinces of Saudi Arabia contain the major oil fields and are predominantly Shia Muslim like Bahrain where protests are still taking place.

Professor Taleb, who is from Lebanon originally said from his experience of civil war ‘the oil will continue to be pumped whoever is in charge’. He judged the monetary policies of the Federal Reserve with its money printing to be ‘a far higher risk to the global economy’ although he noted that it was also the Fed and its policies that ‘blew up the whole place’.

In the same discussion panel, Khaled Abdulla Al Qubaisi, senior advisor at the Mubadala sovereign wealth fund, called for reform in Saudi Arabia ‘at every level to allow the new generation to take charge as happened in Abu Dhabi’. It is rare for Abu Dhabi officials to comment on their neighbour’s politics, and a sign of the passions now aroused in the Middle East by the revolutions in North Africa.

From the investment perspective both Professor Taleb and Jim Rogers will be familiar to readers of this website but are outside of the global mainstream of financial commentators. NBAD was courting controversy in bringing them to the UAE and both gave their rather eccentric ideas on asset allocation.

Portfolio allocation

Commodities are still Mr. Rogers main focus but he is also shorting the Nasdaq and emerging markets as a hedge, and holds US dollars, temporarily at least because it thinks the dollar is undervalued at the moment. Professor Taleb holds to his ‘barbell’ portfolio with 85 per cent in gold or some other ultra-safe repository and the balance used to make wild bets; thus -15 per cent is the floor, while the upside is potentially unlimited.

Then again both Rogers and Taleb saw the merit in Abu Dhabi diversifying away from assets correlated with oil because the emirate is naturally very long on this particular asset class. Taleb thought Abu Dhabi like Switzerland in terms of ‘robustness’ which he contrasts with the ‘fragility’ of surrounding states.

It made for an interesting discussion, far away from the usual Abu Dhabi conferences where everybody agrees and controversy is kept off the agenda. Perhaps though this is now the ‘new normal’ for the Gulf States.