ROTFL! Persian Gulf Banks In Trouble

Banks in the Persian Gulf region have suddenly been hit with panic withdrawals, leading to government intervention.

Oddly, this is going on despite the fact that the price of oil is about $70 a barrel, which is three times the price in 2002. The oil price last was at $70 per barrel only 17 months ago.

There are reports that say:

"The six Arab Gulf economies, which pump almost 23 percent of the world's oil, need prices to remain above $60 to $65 a barrel to sustain spending, investment bank EFG-Hermes Holding SAE said in a report Sept. 23. Oil fell to a 17-month low of $63 today.

If this is true, expect blood on the streets. The US is going to leave Iraq, and the new administration is unlikely to spend most of its time going out of its way to destabilize oil markets by invading Middle Eastern countries for no reason. Prices in the $40 range within two or three years seem likely to me, which is significantly higher than the prices in the twenties that were the norm between 1986 and 2003. At some points between 1998 and 2000, the oil price actually dropped below $15 a barrel.

Mostly what this shows is that Middle East oil states might need banks which actually have some disclosure and accountablity. But accountability would require owners that are actually subject to the rule of law, and given who has all the money in these countries, the only way we could ever see this in the short term is to get out the guillotine and take off some crowned heads. Barring that, people in the Persian Gulf countries should consider keeping their cash at Citigroup or HSBC. At least the US and China might be able to fire the people who throw their depositors money away on these hare-brained investments.