How Markets Are Reacting To Saudi Arabia's Detentions

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Update: Oil prices spiked midday Monday, New York time, but it is unclear if this is related to the events in Saudi Arabia as these significant gains appeared later in the day. There are some indications that oil prices are rising as institutional investors are entering the oil market.

• On Friday evening, the Prime Minister of Lebanon, Saad Hariri (who is a dual Lebanese-Saudi citizen) fled to Saudi Arabia and from the Kingdom announced he was resigning his position. News later emerged that he feared an attempt would soon be made on his life, likely by the Iranian-backed Hezbollah terrorists in Lebanon. His father, Rakif Hariri, had also served as Prime Minister of Lebanon and was assassinated in 2005.
• On Saturday evening, it was reported that Houthi forces in Yemen fired a missile at Riyadh’s international airport. Saudi officials said the missile was intercepted and only debris landed near the airport. Houthi forces in Yemen have fired such missiles at targets in Saudi Arabia before, but never with a target so close to the capital city. Saudi Arabia believes that Iran has been providing these missiles to the Houthi forces in Yemen.
• Shortly thereafter, late Saturday night, Saudi state television reported that the governmenthad “detained” or possibly arrested at least 38 prominent figures. Included among there are princes, high-ranking officials, former officials and wealthy businessmen. The government explained this was a crackdown on corruption. Among those detained, who are reportedly being held at the Ritz Carlton hotel in Riyadh, are Saudi billionaire investor Prince Alwaleed bin Talal; the head of Saudi Arabia’s national guard and son of the previous King, Prince Miteb bin Abdullah; Commander of the Saudi Naval Forces, Admiral Abdullah bin Sultan; Bakr bin Laden, chairman of the Saudi Binladen construction company; and Waleed al-Ibrahim, head of MBC network, the first satellite TV network in the Middle East.
• On Sunday, Prince Mansour bin Muqrin, who was the deputy governor of the Asir Province, was reportedly killed along with 7 others in a helicopter crash. The Asir region is just south of Mecca and on the border with Yemen. According to Saudi news reports, the prince and his associates were carrying out an aerial inspection of the area. The prince had recently been appointed by the Crown Prince and was not seen as very influential, but outside of Saudi Arabia the tragic accident has raised more questions.

In the immediate aftermath of so much news the public markets often provide the best measure of public perception. It is too early for opinion polls either inside or outside the Kingdom, but investors and watchers can observe how the markets react.

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Tadawul, the Saudi stock exchange, took a brief hit when it opened on Sunday morning, but quickly recovered and ended the day up 22 points, or 0.32%. In Monday trading, Tadawul again dipped before ending the day with a small gain. This is inline with much anecdotal evidence that Saudi citizens are satisfied with the moves, especially what they see as a growing focus on ending corruption at the highest levels of government and business.

Shares of Prince Alwaleed’s company, Kingdom Holding Co., however, fell as much as 10% on trading. The company ended Sunday down 7.6%. Investors were clearly reacting to the news of Alwaleed’s detention in the anti-corruption sweep, because independent of recent events, the company announced third quarter profits of $66 million and a 76% increase in revenue. In Monday trading, Kingdom Holding Company dropped another 5%. Prince Alwaleed’s company also holds significant shares of Citigroup C -0.42%, Twitter TWTR -1.86%, Apple AAPL +1.42% and Lyft, among other investments. According to reports, the assets of all of the men currently detained have been not been seized, although Saudi banks have begun to freeze the bank accounts of those under investigation. Surely, the companies in which Prince Alwaleed is a major stakeholder will be watching to see how Saudi authorities proceed.

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Oil markets, which can be a bellwether for global sentiment on Middle East events, opened in Australia and Asia late Sunday night, and either seem unfazed by the upheaval in Saudi Arabia, or consider the heightened geopolitical tensions only a slightly a bullish sign. There is no indicationthat the events in Saudi Arabia will change Saudi Arabia’s oil policy at this time, which is currently set on an extension of the OPEC production deal. Both the Brent and WTI benchmarks rose only 0.4% to reach new two-year highs on Asian markets. Brent was up to $62.30 and WTI at $58.85. Oil futures showed similar increases, with Brent crude for January delivery climbing 1.3% to $62.90 on the London exchange and WTI for December delivery reaching $56.28 on the New York Mercantile Exchange. After the first half hour of trading in the U.S., both WTI and Brent were up less than 0.5%, indicating that the oil markets were not impacted much by the weekend’s events.

Ellen R. Wald, Contributor