Friday, August 10, 2012

Middle East Markets Begin to Stabilize

The time tested way to dampen popular unrest is to provide food and entertainment to the masses. The problem, of course, is that sometimes the funds are lacking. In Kuwait and Saudi Arabia, for example, this is not the case and these governments have been "generous" in providing relief. Given the impact on oil prices of what appears to be a modest loss of output from Libya, investors are understandably concerned that the "jasmine revolution" could spread to the largest oil producer, Saudi Arabia.

Saudi King Abduallah announced today, Wednesday, increased social spending. A package valued at more than $11 billion was presented, and it includes increased spending on housing, education, social welfare; the creation of 1200 jobs in "supervision programs" and a 15% raise in cost of living allowances for civil servants.

In effect, the 86-year-old king is increasing the basket of goods citizens get in hope that it will help soften demands for political change. Six months ago, the Saudi government announced a $385B 5-year spending program aimed to reduce unemployment (20-24 year-old unemployment estimated near 40%).

Recall that starting this month, Kuwait has given its citizens a one-off payment of the equivalent of $3,560 and free food rations for thirteen months. Syria and Sudan have also reportedly increased social spending in recent weeks.

Some Middle East equity markets have begun to tentatively stabilize. Abu Dhabi's index snapped a four days losing streak and the Saudi market broke an eight days drop.

Disclosure: No positions

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