Global Arab Network | Middle East Political Risk Escalates with Intervention of Saudi Armed Forces in Bahrain

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Middle East Political Risk Escalates with Intervention of Saudi Armed Forces in Bahrain

Global Arab Network - - Adam Turner

Wednesday, 16 March 2011 22:41

Moody’s believes that the entry of Saudi troops into Bahrain, as part of a first contingent of security assistance provided by fellow members of the Gulf Cooperation Council (GCC), underlines the gravity of the political situation in Bahrain and a worrying geopolitical dimension to the regions recent flare-up of unrest. Moody’s believes that there is a substantial risk that the medium-term credit fundamentals of Bahrain will be impaired by the present crisis, which seems unlikely to be resolved in the near future. Rising tensions between Saudi Arabia and Iran, which has condemned the intervention, have negative implications for political stability in the wider region, Global Arab Network reports according to a press statement.

It has been reported that the government of Bahrain made a request for security assistance from fellow GCC members to help it address the ongoing uprising by the country’s Shiite-dominated political opposition. The revolt, which began in mid-February, has thrown Bahrain’s politics into turmoil, prompting us to place Bahrain’s A3 sovereign ratings on review for possible downgrade on 23 February 2011.

Tensions between opposition groups and the Sunni ruling family are well-documented and periodic bouts of unrest had occurred for many years. Indeed, Moody’s had long flagged such tensions as an important downside sovereign risk for Bahrain’s sovereign rating. However, the intensity and determination of the current anti-government protests are novel and have been amplified by events elsewhere in the Arab world, particularly the uprisings in Tunisia and Egypt. Against this context, there is a substantial risk that Bahrain’s credit
fundamentals will be impaired by the present crisis, notwithstanding the short-term benefits of rising oil prices.

The severity of the political crisis in Bahrain has been illustrated by the government’s request for outside military assistance, which is unprecedented and follows renewed violent clashes between demonstrators and government forces over the weekend. GCC troops and security personnel have reportedly been tasked with protecting government buildings and oil export facilities, among other strategic assets.

Bahrain"s government has declared a state of emergency with immediate effect and for a duration of three months. The ongoing confrontation between protesters and Bahrain"s armed forces have led to fatalities, and will likely widen the gulf between the demands of the protestors and the willingness of the ruling family to concede powers. This heightens uncertainty about whether political stability can be restored in the near future.

However, the potential implications of these developments are not confined to Bahrain. There is an important geo-political aspect to the intervention of GCC forces, namely the opposition of Saudi Arabia and that of its allies to Iran’s regional ambitions. Specifically, the governments of Saudi Arabia and Bahrain have long voiced concerns that Iran has been covertly supporting Shi’ite protestors in Bahrain as part of its regional strategy. Iran, for its part, has strongly condemned the recent intervention in Bahrain, calling it "unacceptable", and has warned the US and Saudi Arabia of "dangerous consequences". There is therefore a significant risk of an escalation in tensions between Iran and countries from the GCC that participate in the military intervention in Bahrain. This may also have consequences for countries further afield, such as Lebanon (rated B1/stable) and Iraq (unrated), which have acted as arenas for competing regional and international powers.

“Our monitoring of political developments across the Middle East region could result in further rating actions if we are convinced that the deteriorating political situation is likely to endure and that it presents a significant threat to particular countries’ medium-term credit fundamentals.” Moody’s said.

Global Arab Network

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