The current unrest in Yemen and other parts of the Middle East and North Africa (MENA) will unlikely spill into Saudi Arabia and this will allow the Gulf Kingdom to maintain the flow of oil exports, Credit Agricole bank said on Saturday.
But the French bank expected the unprecedented wave of protests for greater democracy to continue in the region and said the resulting surge in crude prices would benefit the economies of Gulf oil producers.
In a study written by John Sfakiankis, chief economist at Banque Saudi Fransi, Credit Agricole said the economies of the six-nation Gulf Cooperation Council (GCC) have not been immune from calls to reform the political economy.
For the GCC societies, the key issue is legitimacy which remains largely unchallenged, unlike other parts of the wider region, it said.
Turning to Oman, it said protester there have focused on demands for better wages, jobs and an end to corruption. It said the protests had, so far, a measured impact on the economy, far less than in the case of Bahrain.
But it noted that major disruptions and violence in Bahrain could impact the country’s image and damage its tourism sector.
“The situation in Yemen will remain precarious but we do not expect spill over effects in neighbouring Saudi Arabia….… the risk to oil production in Saudi Arabia from an Al Qaeda attack emanating from Yemen is quite remote,” said the study, which was sent to Emirates 24/7.
“Similar calls were made during the 2003 Iraq invasion as spill over effects were once again uttered and with time discounted. Saudi Arabia has made significant security upgrades over the recent years in all of its strategic installations, including all its oil installations. There has never been any successful attack that has damaged Saudi’s oil infrastructure or disrupted oil supplies in the course of the country’s oil history. Saudi Arabia’s current spare capacity is 3.5 million barrels allowing it to offset any additional oil lost.”
The study described the macro outlook for Saudi Arabia as solid, based on higher oil production, strong oil prices and high government spending.
It said this had prompted the Bank to increase its growth forecast for Saudi Arabia from 4.2 to 5.5 per cent.
“The rest of the Gulf’s economies will continue to be positively impacted by higher oil revenues. Bahrain’s political quagmire seems to be decelerating or at least unrest seems less disruptive for now,” it said.
“The return to normality is gradually gaining pace with the opening of the Causeway between Saudi Arabia and Bahrain. Bahrain will continue to be geopolitically and strategically supported by the rest of the GCC in light of any systemic threats. Bahrain’s careful political navigation in the next few weeks requires vigilance.”
For Kuwait, the recent resignation of the cabinet is not surprising given the assertiveness of its parliament and the delay of important economic reform projects over the last few years, according to the study.
“Markets have priced in such political disruptions which have never impaired Kuwait’s oil export capacity. Just like in the case of Saudi Arabia and the UAE, Kuwait will be able to benefit from anticipated higher oil revenues.”
Credit Agricole said it is hard to foretell the political end game in MENA but added that it believes calls for a voice and participation do not seem to abate.
It said Libya’s future is uncertain as developments in Syria are shifting attention to the Mashreq. Events in Bahrain require vigilance and Yemen is changing.
“US foreign policy in the region is exhibiting a differentiation between values and real politik interests. Few in the MENA region have been immune to the ‘Arab Revolts’….. Friday has become the most watched day by everyone in the region and outside. It seems this trend will continue,” it said.
“Calls for a voice, accountability, transparency and less corruption are hallmarks of the ‘Arab Revolts’….It is hard to predict the political end game of the region. It seems more likely that calls for a voice and participation will not abate.
Those countries initially perceived as more able to withstand the winds of change in the Arab world are less immune today.”
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