​Gulf in panic: Crude and equities crash, and Saudi princes arrested

GULF COUNTRIES - In Brief 08 Mar 2020 by Justin Alexander

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Oil drops by $10 to the lowest since February 2016 as the OPEC+ deal collapses.A sustained oil dip poses serious risks for Oman, Bahrain and even Saudi Arabia.Gulf equities suffered one of their biggest routs on Sunday, including Saudi down 8.3%.The arrest of senior Saudi royals mitigates risks to MBS’s succession, which could happen soon. There are many interconnected factors weighing on Gulf markets including the crash in oil prices, unprecedented closure measures to limit the spread of coronavirus and the Saudi arrests. In addition, nearby states are in crisis amidst a breakdown of governance in Iran and Iraq and debt default in Lebanon. As this all plays out in the coming days and weeks, combining local and regional issues with the broader global turbulence, financial markets in the Gulf will be particularly volatile, and several countries may face severe fiscal and balance of payment challenges. Bond and equity investors will rack up considerable paper losses but there may also be buying opportunities as broad movements fail to distinguish properly between the long-term strength of individual assets. We will provide more detailed analysis in the days to come, but this is a rapid note in response to critical developments over the weekend. 1. The oil price crash It is not entirely clear what went wrong in the OPEC+ negotiation process that resulted in Russia rejecting OPEC’s proposal. The problem may have been the coronavirus developments. Previous changes to the deal, such as the nine-month extension agreed in June and the additional cuts agreed in November, were preceded by weeks of bilateral Saudi-Russian talks, reaching alignment prior to Vienna meetings. After ...