Regime change in Saudi Arabia - the elephant in the room for investors

It seems to me that the earthquake of political and social change which has led to the collapse of the established order in Egypt and other Arab countries has triggered a tsunami which is heading for other countries some considerable distance away. In my opinion the big issue is going to be the impact on Saudi Arabia. Saudi has a very unbalanced population - very skewed to the younger age groups who have been at the forefront in Egypt and elsewhere. Unemployment in this population segment is very bad. There are already religious and political tensions. Disaffection is pronounced. Problems have been bubbling under the surface for some time.

So is the scene set for a copy-cat uprising? Well not exactly. The popular uprisings in Egypt et al have been largely secular. Religion has played little or no part in any of them. The outcome in every case has been a situation no more influenced by religious movements than before. And in most cases the uprisings have been relatively moderate - little or no organised violence.

Saudi is different. There are strong religious factions who support and/or sympathise with the use of force. There are already extremist groups with access to weaponry and with organisation and discipline. An uprising there could easily turn into a vicious civil war. And a new regime could easily turn out to be strongly predisposed against the west.

So post regime change,  access to oil reserves could be seriously problematic. Which means the price of oil could go into orbit. And we could see an immediate major impact on the world economy.

Of course those of us who invest in oil companies would benefit, right? Well no, not exactly. If the global economy takes a beating, then so will shares in E&P's regardless of the oil price. And governments everywhere will rush to intervene. Oil producing countries will be inclined to revise or even repudiate licences and PSC's. Countries where E&P's are resident will enact wind-fall taxes on the "entirely undeserved" profits which arise from stratospheric crude prices.

There is no escape. We have a major risk situation looming. What surprises me is that nobody seems to be talking about it.