As a quick update to all readers (the last time I checked there are only 23 unique hits for the average day and still only 1 subscriber, come on guys)...
We are at the moment playing a waiting game, as any one of several "sticks of dynamite" could ignite world events at any time. These "sticks of dynamite" are countries that are in a potentially very vulnerable ECONOMIC situation, or a potentially very vulnerable POLITICAL situation.
They can be identified as:
> Saudi Arabia (political unrest)
> Greece & the other PIGS (debt crisis brewing after credit rating downgrade)
> China (political unrest)
Saudi Arabia
Tensions in the desert land's eastern Provence, where lies the crown jewel of Saudi Oil, the 5.7 million barrel a day Ghawar field, are running high. Growing unrest amongst the countries Shia majority has manifested itself over the last few days in protests in several small towns. The House of Saud has mustered tens of thousands of Aramco (state oil company) militia men to guard the oil industry, particularly the Ras Tanura facility which processes 10% of the world's crude. Any disruption here, or to any of the major oil rigs in the stalwart Ghawar and Shedgum reserves would send oil markets spiraling in what could be described as an inflationary "volcano". The Saud's and the Aramco oil company are right to be concerned, for a "day of rage" has been called by anti government protesters for the 11th of March, inspired by action taken by complainants in other parts of the Arab world. Any significant political disruption in Saudi Arabia will not only panic the speculators (who are simply making guesses about the future), but may well spark the introduction of oil rationing. Nearly all of the world's spare production capacity is controlled by the Saudi's, who might be able to boost production for up to 2 years from the current 8-9.5 million barrels a day to 10-11.5 million barrels a day. After then, the decline rates in other fields will have canceled out the spare capacity in the small pockets of oil that they have spent the last 5 years bringing on stream.
Greece and the other PIGS
Greece's debt matures more quickly than most other European countries, because it has found it difficult recently (no wonder) to borrow long term. The news comes today that the credit rating agency Moodys have downgraded Greece's sovereign debt again from Ba1 to B1, placing them further in the "junk" investment zone, and suggesting that a some sort of default within the coming years is likely. The situation could rapidly spiral out of control if the interest rate that the Greek government must pay on the debt that it must both frequently renew, and frequently add to given it's enormous fiscal deficit, shoots up again. Investors might react to Moodys credit signal by rushing to sell off Greek debt, resulting in a collapse in confidence in the Greek government, causing higher, more punishing demands for interest. According to The Economist newspaper, the average maturity length of Greek debt is 7.7 years. Ignoring the deficit (the amount of money Greece borrows in addition to its outstanding debt- which it can only afford to renew "rollover" rather than repay) Greece's national debt stands at roughly 110% of GDP. Greece must "rollover" debt equivalent to 14% of it's GDP every year, and this "maintenance cost" is rising by the day. The Greek government is still borrowing close to half of every euro it spends. The economy is also crashing fast, with the latest figures indicating an annual decline rate of 6.6%. This of course expands the relationship between debt and GDP. Even though the Greek government is paying a fat load of interest for it's debt, it is still borrowing more than it pays to maintain the debt. Investors may soon become dissatisfied with Greece's unsatisfactory attempts to trim their ballooning deficit. Interest repayments alone could quickly exceed more than 10% of Greece's GDP, acting as an even greater drain on the money Greece could be investing domestically. If the Greek debt crisis worsens- or more likely "when" the Greek debt crisis worsens, other highly indebted countries- Portugal, Italy and Spain better watch their backs. There is only so much money in the bailout fund, and if contagion spread to these, the Europe could rapidly topple into a deep depression.
China
If anything materializes of the apparently brewing "Jasmine Revolt", the whole world will find itself in a great deal of mess. China has been the great miracle of the last decade, enjoying miraculously rapid GDP growth. Some have started to doubt the figures that the government are putting out, and there are growing complaints about food price inflation- partly driven by oil- partly by the population boom- and secondly, environmental concerns are growing, as China's highways clog to the point where it is said that insects walk faster than motorcars. China is probably unlikely to go first, but if Saudi Arabia does, then you never now...
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