Political risks return to the fore

Events this month have highlighted the risks posed by politics to the region’s two largest economies. While Saudi Arabia initially suspended around half of its daily oil output following attacks on its oil facilities, it looks like there won’t be any long-lasting disruption. There’s a significant risk, however, that the attacks precipitate outright military conflict in the region, which we’ve estimated could shave a total of 0.5% or more off global GDP growth. Meanwhile, recent protests in Egypt have raised fears that the country is on the cusp of a period of unrest. Past experience shows that this would be economically damaging – at the height of the Arab Spring in Q1 2011, GDP contracted by 4.3% y/y. For now, a security crackdown seems to have prevented the protests from gaining momentum. But unless the government delivers on the reforms needed to create better-paid jobs for the rapidly-expanding population, the threat of unrest will linger.