"WHY SAUDI ARABIA KEEP US AT NIGHT?"

Saudi Arabia´s stability is under fire from religious and secular forces. Islamic extremists hope to undermine the legitimacy of The Royal Family.

Real unemployment us estimated to be between 20% and 25%m frustrated jobless young men are flocking to mosques and schools where religious leaders thunder against the infidels. Western nations, meanwhile, are calling on the royals to move toward political liberalization. And the flight of expatriates will eventually take its toll on the Saudi´s ability to divesify their economy.

Such volatility complicates financial deals and extends the exposure to political risk over the time.

But what companies with long-term investments must worry, short-term investors in Saudi Arabia have less cause of concern. That´s because oil money stabilizes the political system, and the royal family can count on those revenues for years to come.  Yes, oil supplies are a tempting target for terrorists; but the country´s oil infraestructure is isolated from population centers, and redundancies in the pipeline system make it almost impossible to inflict lasting damage with a single blow. In addition, the National Oil Company has the technology, the trained engineers, and the spare capacity to continue producing significantly more than 9 million barrels per day.

Finally, in light of concerns that foreign governments might freeze Saudi assets fllowing September 11, 2001, a great deal of money flowed back into the kingdom, providing the House of Saud with more ready cash.

Clearly, any project in Saudi Arabia that needs a decade to show a profit is deeply problematic. But those willing to brave volatility in the near term may profit from opportunities that more risk averse companies forgo.

HARVARD BUSINESS REVIEW-june 2005 "Making Risk in an Unstable World"