As Egypt Cools, Is Saudi Arabia Next?

01/31/2011 10:40 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

Egypt's uprising has led the world to wonder if more dominoes are yet to fall, and Saudi Arabia has an eerily similar recipe, writes Igor Greenwald.

Recipe for a revolution:

  • Start with 80 million people, almost 30% of them illiterate

  • Pack them into narrow corridors of arable land along the Nile and the Suez more densely than in Bangladesh or the Netherlands

  • Double the population of 15-to-24 year-olds during the 30-year reign of a brutal dictator

  • Turn growing numbers of university graduates out into a stagnant low-tech economy

  • Suppress alternative political and religious views as well as freedoms of speech and association

Egypt is only the most spectacular instance of a popular Arab uprising that has already toppled the Tunisian dictator and sparked protests in Algeria, Yemen, and Jordan.

But the country that matches Egypt's incendiary recipe more closely than most is the one that has remained curiously quiet of late: Saudi Arabia. The Saudis, of course, have oil wealth Egyptians can only envy. But the concentration of this wealth in royal palaces has not gone unnoticed by Saudi city dwellers.

Saudi Arabia's newly urbanized population is almost as young as Egypt's, with a median age of 25; and while the Saudis' job opportunities are better than Egyptians' thanks to the petrodollars, they're still circumscribed by princely privilege and the economy's dependence on oil. The 86-year-old King Abdullah is not in the best of health. He was quoted as describing Egyptian protesters as “infiltrators” in a supportive phone call to his friend, now-deposed Egyptian dictator Hosni Mubarak. His Royal Highness has never been in touch with sentiment in the Arab street. But the Street may get in touch with him before too long.

Unrest in the markets, too

And so the measuring stick for this crisis is not continued shipping through the Suez Canal, and not even the outcome of the Egypt protests. The only question is where this populist earthquake will stop, and how many more regimes it might topple.

The threat of popular uprisings across the Arab world is a big positive for grain prices. Arab countries are already major importers of grain, and for the foreseeable future they will attempt to stave off revolution with cheaper subsidized bread, stimulating demand and requiring even higher grain imports. Grain prices have perked up noticeably since the unrest began and are on the rise again today, with wheat moving more than 1% higher.

This dynamic is also bullish for oil, because the rising cost of buying off unrest has just given the Saudis added incentive to keep the oil prices high. It also means that even a modest retreat in crude will be potentially destabilizing if it threatens the increased subsidies.

And, ultimately, we're reminded that the leading oil producer in the world is stuck with a feudal regime that looks more precarious by the day. How long will Saudis tolerate an absolutist monarchy if Cairo now follows Baghdad along the democratic road? Guesses on that score could play a big part in the oil prices in the months ahead.

(Full disclosure: I own shares of the iPath Dow Jones-UBS Grains Subindex Total Return ETN (NYSEArca: JJG), an exchange-traded note tracking the prices of corn, soybeans, and wheat.)

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