Arab spring’s violent phase ratchets up risk

March 21, 2011

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Hugo Dixon
The Arab spring’s violent phase is ratcheting up investor risk. Hopes that further dominoes would fall with minimal violence, in the same way that regimes in Tunisia and Egypt were toppled, have been dashed. Others — notably Libya, but also Bahrain, Syria, Yemen and even Saudi Arabia — are still tottering. But none will fall easily. The prospect of bloody conflicts will push up already-heightened risk premia, including the resurgent oil price.

Conflicts are bubbling up throughout the region — most obviously in Libya, where it is unclear whether the Western-led imposition of a no-fly zone will lead to the swift ousting of Colonel Muammar Gaddafi or a long drawn out civil war. Yemen could be next but it probably won’t fall in a happy manner: the al-Qaeda-infested country could split and turn into even more of a failed state.

Elsewhere, sectarian conflict between Sunnis and Shi’ites is rising. It’s already rampant in Bahrain. But it could spread to Syria and Saudi. Riyadh is increasingly worried. Not only has it just sent troops into Bahrain to help suppress the Shi’ite majority there; it has also promised domestic handouts worth an astonishing $93 billion in an attempt to keep its own population quiet. The cash won’t just be used to pay for homes and social programs, it will be used to boost the morality police and security services.

Shifting geopolitical relationships are also adding to instability. The previously rock-solid Saudi-U.S. axis, one of the few fixed points in a rough neighbourhood, is looking a little wobbly. The two countries still need each other. But the United States is finding it increasingly hard to maintain its traditional approach of backing friendly autocrats. Its abandonment of Egypt’s Hosni Mubarak and slightly critical stance on Bahrain seems to be unnerving the Saudis. Meanwhile, Israel is increasingly twitchy and Iran potentially capable of causing trouble.

It is still possible to hope that the region will eventually make a transition to peace and prosperity. But the short-term risks are mounting.

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