This wasn't the best of weekends for Middle Eastern autocrats. The forced departure of Egypt's 30-year president Hosni Mubarak, less than 24 hours after he pledged to stay in power, gives victory to the Tahrir square protesters but other dictators will worry about the trend. After all, it was only last month that the Tunisian despot Zine El Abidine Ben Ali was forced from office.
Markets took the Mubarak news with relief, having plunged on earlier fears that he would obstinately cling to power, and his country might descend into uncontrolled violence. But the relief rally may be premature. The fact that Mubarak is gone does not automatically mean that calm will return. Nor does it guarantee a smooth transition to a more democratic regime and the rule of law. Emboldened protesters in neighbouring states may also confront other potentates in highly unpredictable showdowns. In a politically combustible region, similar sparks could ignite very different fires.
For the unpleasant truth is that, in Egypt and elsewhere, the likelihood of persistent chaos is higher than that of an orderly transition. Panicked dictators can react in a dangerous way, while the absence of civil society and durable political parties can easily lead to anarchy, perhaps civil war. The end result might be that one dictatorship is replaced by another. Look at Algeria, a Mediterranean country blessed by oil and scarred by poverty: who could predict what would happen there if a confrontation between Islamic parties and the army rekindled the civil war of the nineties?
So, markets beware. Consider what would happen if the Suez canal was closed or if oil supplies were hit by protests in Saudi Arabia's eastern province?
True, oil doesn't have the same importance today as in 1973 and 1979, when major oil shocks followed the geopolitical upheaval of the last Egypt-Israeli war, and the Iranian revolution. But a major disruption of oil supplies retains its capacity to seriously hurt Western economies.
In the longer term, there's no doubt that more democratic regimes will bring more stability and more prosperity to the region. But it will take some time to get there. In the meantime, global investors should tighten their seat belts.
© 2011 Financial Post and Leaksource.com