Financial markets incredibly complacent about Arab World unrest
Posted on 17 February 2011 with 2 comments from readers
It is as though past oil shocks never happened. It is as though thousands of rioters take to the streets in Bahrain every weekend. It is as though Egypt is now a safe and secure democracy.
The stock markets of the world are incredibly complacent in the face of unrest across the Arab World. This is a threat to the security of the whole world and in particular the vital energy supplies of the Gulf.
Oil shocks
In the past even the possibility of a minor disruption to oil supplies sent oil prices north and stocks sharply south. Now investors are worrying about missing the next uptick on the Dow, and they have become smaller and smaller, rather than noticing the bigger picture.
Of course it is much easier for the Arabian investor. We are bound to be feeling the heat while others think they are safe and secure in the West or East.
It is not all bad for us either. Abu Dhabi could still open its check book yesterday and swallow Spain’s largest oil refinery for $5.4 billion. But the local situation is a major worry.
Even for the oil rich UAE, with its stable and mainly expatriate population, there is a downside to the disruption of trade as a major transportation and distribution hub for the region. The multinationals of Jebel Ali will have plenty of angst in the boardrooms this week.
Potential upside
On the other hand, the UAE seems a likely beneficiary from a flight of capital and wealthy residents from the troubled lands of the region. GCC tourists have already diverted to Dubai and Abu Dhabi in substantial numbers making this year’s Dubai Shopping Festival unexpectedly successful.
Will Bahrain now cease to be a financial centre and the institutions based there pack up and move to the gleaming, and mainly empty, new infrastructure of the Dubai International Financial Centre? It could well happen.
After 9/11 the UAE also looked poorly placed for foreign investment, and even tourism ground to a halt. But then came the Arab money returning from the US and Europe to avoid being frozen. That set off the famous boom of the 2000s until it stopped in late 2008.
However, it is probably just too early to be sure that another potential geopolitical disaster has a silver lining for the emirates, and in the meantime most investors are just concerned about the outlook for the rest of the Arab World, and that hardly looks good.
2 Comments posted by readers:
They way things are its hard to predict that any country will be safe. Having said that in ME, UAE does seems a more stable country compared to others PGC. Even Saudi looks shaky after Egypt. As Martin Armstrong puts it, this wave will soon reach europe then America.
I agree with your perspective on the seemingly incredible complacency in the global financial markets; but then again, as the US government continues to pump billions into its stock and bond markets each trading day to keep them afloat, other countries have followed the US lead and are doing the same thing. One thing is for certain: this will end badly.
Beirut, Bahrain, Dubai:
I remember back in the early 1970s when Beirut was a great commercial and financial center in the Middle East; then all hell broke lose, and this beautiful city was torn apart. So your question about whether Bahrain will remain as a financial center in that region is quite appropriate; it’s quite conceivable that Dubai could be a big beneficiary if, unfortunately, Bahrain implodes.