ECR: Experts slash country risk scores across the Gulf region

By:
Andrew Mortimer
Published on:

Uncertainty continues to cloud the future of the Gulf region.

Since late February, the political awakening which began among the youthful populations of North Africa has erupted in several GCC member states. Collective unrest across large swathes of the Arab population, an event regarded by many commentators as an impossibility, has reshaped the political landscape of the Gulf. As a result, Euromoney Country Risk scores for countries across the region have fallen significantly in recent weeks.

In the Gulf region, ECR scores for each of Bahrain, Saudi Arabia, Qatar and United Arab Emirates have all fallen since March, while Oman and Kuwait have remained unchanged. On average, the ten most highly rated MENA region countries in ECR’s economic consensus have fallen by an average of 1 point since the results of the March 2011 survey were published.

MENA Region: ECR Top 10, March 30 2011

Country

ECRRank

ECRScore

Score change vs March '11

Rank Change vs March '11

Rank Change vs Sept '10

Qatar

25

74.19

-1.34

-4

-4

Kuwait

32

70.47

0

0

7

UAE

33

69.54

-0.16

0

1

Oman

34

67.65

0

0

7

Saudi Arabia

38

63.59

-1.53

0

-3

Bahrain

54

58.00

-7.65

-17

-16

Morocco

67

51.28

0

0

-5

Jordan

68

50.67

0.25

0

-1

Tunisia

81

45.17

-0.24

0

-12

Lebanon

91

42.57

-0.96

-1

-15

Average

-1.16

-2.20

-4.10


Saudi Arabia score falls after Bahrain troop deployment

Saudi Arabia's score fell from 64.5 to 63.6 in the week of March 21-25. The world’s largest oil producer is now considered the third riskiest country in the Gulf after Yemen and Bahrain. Sporadic protests have taken place this month in the largely Shia-populated Eastern Province. Saudi security forces have used rubber bullets and percussion grenades to disperse protesters on several separate occasions.

The Saudi authorities have attempted to appease the protest movement using financial rather than political concessions. Outstanding housing loans worth a total of 1.5 billion Saudi Riyals ($500 million) have been written off. A 585 million Riyal ($150 million) state real estate development fund has been set up to provide new housing. State unemployment benefit has been increased to 1,000 Riyals ($270) a month. Meirion Board, Head of Strategic, Credit and Market Risk Management at Aspen Insurance, an established political risk insurer, says: "King Abdullah’s room for manoeuvre on reform is restricted by the need to retain the support of the Wahhabist clerical movement for the House of Saud."

The looming succession of the Saudi throne also presents a significant obstacle to government stability in the Kingdom. King Abdullah will be 88 in August, and his chosen successors, Crown Prince Sultan (born 1924) and Prince Nayef (born 1933) are only slightly younger. Ayah El Said, MENA region economist at Roubini Global Economics, says that: “Unlike the King, neither Sultan nor Nayef command popular support. Both are considered reactionary and less willing to accommodate social change than Abdullah. The popular unrest taking place across the Middle East therefore presents protesters with an opportunity to influence succession within the House of Saud.”

King Abdullah’s decision to deploy Saudi troops in the neighbouring kingdom of Bahrain has divided opinion among ECR experts. Some consider it to have escalated the risk of unrest in Saudi Arabia itself. Tellingly, witnesses of a protest near Qatif in the Eastern Province last Friday claim that the Shia protesters carried Bahraini as well as Saudi flags. "By deploying forces in Bahrain, the Saudis risk precipitating further domestic protests by the Shia population of the Eastern Province,” says Anthony Skinner, Associate Director of Maplecroft, a political risk consultancy. Meirion Board, of Aspen Insurance, disagrees: "Had GCC forces failed to intervene in Bahrain, there was a real risk that the security situation both in Bahrain and in the neighbouring Eastern Province could have deteriorated rapidly."

Bahrain score tumbles following unrest

Continued political unrest among the Shia population, violent clashes between security forces and protesters and the deployment of GCC troops earlier this month have created a slippery slope for Bahrain in the ECR table. The country has fallen 17 places to 54th place since the publication of the March 2011 results as fears mount that the political situation in the country may prove untenable.

The protest movement among Bahrain’s Shia majority population has been met by an escalating security response from the Bahraini authorities in recent weeks. Opposition leaders of the hardline Shia Haq and Al-Wafa parties have been arrested, and security forces have used force to retake the symbolically important Pearl Square. The Shia leadership have stated that negotiations with the Al-Khalifa ruling family are impossible in the current security situation. Meir Javedanfar, Director of the Middle East Economic and Political Analysis Company, says: “The more the Bahrainis use force against the protesters, the more likely it is that the situation will get out of control.”

The question now is whether the business environment in Bahrain will remain volatile in the medium to long term. The danger is that the actions of the regime risk radicalising majority Shia opinion against the regime. Anthony Skinner of Maplecroft says: “The demands of the moderate al-Wefaq party are still centred on constitutional reform rather than the removal of the ruling family. The arrival of Saudi troops brings with it the real risk of polarising opinion against the al-Khalifas.”

Unrest has negative security implications for the Gulf region

The crisis in Bahrain appears to have grave implications for the Gulf region as a whole. Crucially, the unrest appears to have evolved from a manifestation of the youth-led secular protest movement witnessed in Tunisia and Egypt into a much more worrying escalation of the Shia-Sunni conflict that has plagued post-invasion Iraq and the Lebanon in recent years. “The Saudis have seen Iranian influence rise in Iraq following the US invasion,” says Javedanfar. “They have seen the gains made by Hezbollah in Lebanon in recent years. Now they have decided that enough is enough.”

The region’s security is further imperilled by the unrest taking place in Yemen, where protests against President Saleh’s thirty year-reign appear to have attained critical mass. The nature of Yemen’s tribal society means that an overthrow of Saleh would complicate US and Saudi Arabian anti-terrorist operations against Al-Qaeda insurgents in Yemen’s northern hinterland. Meirion Board of Aspen Insurance says: "It is probable that, following the deployment of troops in Bahrain, King Abdullah’s support for President Saleh has waned. Maintaining an effective security presence on two fronts is likely to prove a sterner challenge for the Saudis."

Despite the short term stability that may be bought by the transformation of Bahrain into a de facto Saudi protectorate, such security challenges are one reason why questions remain over the wisdom of King Abdullah’s strategy. “The Saudis are playing with fire,” says Javedanfar. “The repercussions of their actions will be felt for years to come.”


A version of this article first appeared in Euromoney Country Risk.

Euromoney Country Risk is an online service from Euromoney dedicated to sovereign and country risk.