ARTICLE: “Saudis unveil plans to open up markets,” by William Wallis, Financial Times, 10 May 2006, p. 23.
People like to draw comparisons to the 70s’ oil shocks, but they don’t hold up. The global oil market back then was long-term contracts and very bilateral. Security meant owning the barrel in the ground.
Now it’s very fluid and marketized and insecurity is measured in price fluctuation, not in any meaningful threat of being cut-off by producers (though terrorists still worry). That’s because the oil producers are more politically dependent on their export earnings than we are economically dependent on imported oil.
As I have said many times, what drives tightness in the market right now has less to do with supply than with downstream throughput capacity (refining) and a big uptick in demand, thanks to India and China alone.
Plus, the demographics are very different now in the Middle East, with the youth bulge pushing governments there to open up their economies to job creating investment flows.
So now we have Dubai vying to become the Singapore of the Middle East, plus Qatar, plus Bahrain, and according to this article, Saudi Arabia as well.
So the “Saudi Capital Markets Authority yesterday announced plans to partially privatise the Tadawul All Shares Exchange, the government-owned Saudi stock exchange.”
This move comes on the heels of the government announcing plans to build a new financial district in the capital “as part of a programme of modernisation and expansion of Saudi Arabia’s fast-developing financial sector.”
Here’s the kicker: the new financial center is “intended to operate under regulatory and technological standards matching those in the main global financial centres.” This is what I call synching up your internal rule set with the emerging global rule set, which I shorthand as free markets, free trade, transparency and collective security (notice how I skip the D word).
Since Saudi Arabia is the biggest economy in the region, this market is naturally viewed as ultimately dominating the others.
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Comments (1)
The quote provided above, “intended to operate under regulatory and technological standards matching those in the main global financial centres.”, is interesting in that Islamic Law (ruleset for Saudi Arabi) does not allow for many of the practices of Westernized economies.
Another interesting point is how this is similar to the Chinese model. The similarities that I see are that the Saudi's are going to open up on the economic front but not the political front. Is political openess a consequence of a truly free flowing economy? I agree the two are connected, but are they forced by each other? Not my area of expertise, but sipping my Starbucks Latte and negotiating the price of a copy of the little red book in Tiananmen Square, all the while in the shadow of the picture of Mao, shows that this method is the compromise "the party" has reached inorder to maintain power while appeasing the masses.
Posted by Matt R. | May 11, 2006 6:35 PM