How Far Will The Virus Spread?

Yemenis square off in "Day of Rage"

(Reuters) - Tens of thousands of Yemenis squared off in street protests for and against the government on Thursday during an opposition-led "Day of Rage", a day after President Ali Abdullah Saleh offered to step down in 2013.

Anti-government activists drew more than 20,000 in Sanaa, the biggest crowd since a wave of protests hit the Arabian Peninsula state two weeks ago, inspired by demonstrations that toppled Tunisia's ruler and threaten Egypt's president.

But an equally large pro-Saleh protest also picked up steam, and supporters of the president who has ruled Yemen for more than three decades drove around the capital urging Yemenis over loudspeakers to join their counter-demonstrations.

The stakes are high for Yemen, on the brink of becoming a failed state, as it tries to fight a resurgent al Qaeda wing, quell southern separatism, and cement peace with Shi'ite rebels in the north.

Yemen's opposition coalition said it wanted assurances that reforms would be implemented, and demanded better living conditions for Yemenis, about 40 percent of whom live on less than $2 a day while a third suffer from chronic hunger.


We should watch developments in Yemen with great interest and attention as the civil unrest contagion appears to continue to spread throughout the Middle East.

While there is much legitimacy to grievances expressed by many in the civilian population, as we observed in our previous post, there seems to be a guiding hand behind the unrest.

A crucial development would be unrest severe enough to bring about a hostile government that disrupts traffic through the Bab el-Mandeb "gate of tears" - the opening from the Red Sea to the Indian ocean through which a large percentage of oil traffic flows.

Dangers at Sea

The Bab el Mandeb is the exit point to the east for loaded tankers carrying nearly one million barrels of oil per day from one of the world's most important crude oil terminals, the Saudi port of Yanbu.

Roughly 40 percent of the world's fleet of transoceanic oil tankers passes through the Bab el Mandeb every year.

...the flow of oil is critically vulnerable not at sea but where the shore interfaces with the sea: at oil loading terminals and associated infrastructure. Navies, including many not as large or as powerful as that of the United States, can attack these facilities with dramatic and long-term effects on the energy supply and the price of oil. It could take years to rebuild or replace a terminal such as Ras Tanura, in Saudi Arabia, if it were destroyed. Remove the Juaymah terminal and Yanbu as well, and 20 percent of the world's maritime oil exports would be cut off and access to nearly all of its spare oil production capacity blocked. Oil refineries at both loading and discharge ports are similarly vulnerable, and they are presently the weakest link in the oil supply chain.

If these events occurred, my forecast of $60 crude oil due to existing deflationary pressures would be cast by the wayside as oil could conceivably rocket to perhaps $150 per barrel.  A price at that lofty level for any length of time would blast a hole in the economic recovery of developed nations and cause an intense inflationary spiral in a host of goods and commodities as long as the reduced supply lasted.  As the high prices damage the economy over time, a negative feedback loop would arise in the medium term and cause demand for oil to drop and deflationary pressures would then reassert themselves.

The possibilities are numerous and the results complex as we see the Middle East in flux. One wonders if any of the autocratic Arab regimes are resilient enough to survive the contagion that is spreading? The Saudis are beginning to look vulnerable to this observer.  If so, is there a "chosen" leader waiting to replace the house of Saud?