For Whom The Bell Tolls: Saudi Arabia

Todd Shriber
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Another day in the Wild West that is the Middle East has oil hovering at 29-month highs, U.S. military personnel on standby regarding Libya and assorted other alarming fare that led to a mighty tumble for U.S. stocks. Libya is the problem of the moment, but if Tuesday is any indication, it might not be a stretch to say the market is starting to ''price in'' the effects of protests and/or disrupted oil supply from Saudi Arabia, the world's largest oil exporter.

Mark your calendars as Saudi Arabia's day of rage is scheduled for March 11 and that has the potential to be a big day. As I noted last week, the kingdom suffers from rampant unemployment, but the reality is, it is up to its ears in other problems and some of these issues cannot be solved with King Abdullah's $35 billion bribe to the people.

Along the lines of that $35 billion to be used for affordable housing, education, healthcare and some public works projects, where is the cash going to come from? Presumably, spare oil production capacity. The chart below, courtesy of Citigroup, details 5.2 million barrels per day in OPEC spare capacity, about two-thirds of which would come courtesy of the Saudis.

OPEC Spare Capacity

Given the kingdom's reputation for some fuzzy math when it comes to oil reserve estimates, it might be best to take the ''I will believe it when I see it'' approach to the country pumping another 3.5 million barrels per day.

On the political front, Saudi Arabia is kind of like Apple: It has serious succession issues that flagrantly refuses to address. Even if protests do not reach Saudi Arabia, what happens if King Abdullah, whose health is not wonderful, suddenly dies? Well, the answer is Crown Prince Sultan becomes king, but according to Foreign Policy, Sultan suffers from Alzheimer's disease and does not even recognize government officials he has known for years.

This is a dangerous scenario because it will almost certainly lead to infighting regarding who will be Sultan's successor. As Foreign Policy notes, Sultan's brothers and sons are angling to be named crown prince if he becomes king, but Abdullah is working behind the scenes to ensure that one of his own brothers or sons becomes the next crown prince.

''Last legs'' is a phrase that has been used recently by multiple sources to describe Abdullah's health and obviously Sultan is no upgraded on that front. Saudi Arabia has been deemed one of the more docile countries in the region in terms of its citizens maintaining the status quo, but the death of Abdullah and Sultan's ascension to the throne may provide an opening for a legitimate change in government in the kingdom.

That would be a good thing over the long-term, but the near-term shock to global equity markets on just the mere speculation of disrupted Saudi oil supply will be painful. At this juncture, there are still plenty of gyrations to be witnessed in the Middle East, but it really is all about Saudi Arabia.