Gulf Markets, Economies Can Cope With Escalating Yemen Conflict

Posted by: : Paul EbelingPosted on: March 26, 2015 Gulf Markets, Economies Can Cope With Escalating Yemen Conflict

Gulf Markets, Economies Can Cope With Escalating Yemen Conflict

The conflict could pose a domestic security challenge for Saudi Arabia, and deny Dubai and Oman the economic benefits of rapprochement with Iran

Economies and markets in the wealthy Gulf Crude Oil exporters barely blinked as Islamist militants overran parts of neighboring Iraq last year, and they look likely to ride out escalating conflict in Yemen with similar ease.

Air strikes against Houthi forces in Yemen by Saudi Arabia Thursday raised the prospect of a proxy war, with Shi’ite Iran backing the Houthis and Riyadh plus other Sunni Muslim monarchies supporting Yemeni President Abd-Rabbu Mansour Hadi.

A war would probably dent the confidence of international investors in the entire Gulf. It could pose a domestic security challenge for Saudi Arabia, and deny Dubai and Oman the economic benefits of a hoped-for rapprochement with Iran if there is an international agreement on Tehran’s disputed nuclear programme.

As a result, stock markets in the six Gulf Cooperation Council states: Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain slid Thursday, with the Saudi index down 1% after a 5% dive Wednesday.

But other market indicators showed little worry.

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Gulf bonds barely moved and credit default swaps, used to hedge against sovereign defaults, rose only marginally; 5-yr Saudi CDS are up just 4 bpts in the past week.

That is because the GCC states have shown over the last few years that they’re able to insulate their economies from geopolitical threats, such as the turmoil in Iraq and the Arab Spring uprisings of Y 2011, fund managers and analysts said.

The Gulf countries have almost Zero economic exposure to Yemen, analysts say, even less than it does to Iraq, where some GCC energy and telecommunications firms have big operations that have suffered over the past 6 months.

In fact, as past geopolitical crises have shown, GCC economies may actually benefit from the Yemen conflict if it pushes up Crude Oil prices, increasing export revenues. Yemen has been selling about 1.4-1.5-M bbls of Crude Oil per month; if that dries up, Saudi Arabia may fill much of the gap.

There is no clear sign that any of these risks will materialize, and the GCC has resisted such threats for years. Saudi Arabia expelled all Yemeni workers in Y 1990 after Iraq invaded Kuwait, and expelled tens of thousands in Ys 2013 and 2014 during a crackdown on illegal foreign labor.

Many analysts attributed this week’s slide of the Saudi and other Gulf stock markets as much to profit-taking and concern about upcoming Q-1 earnings as to geopolitics.

Stay tuned…


Paul Ebeling


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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.

Trade FX, Equities and Options with the World's Leading Platform , call our trade desk 631 482 0376, or contact us to get started.

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