Global financial implications of Osama’s death

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Almost 10 years after Al Qaeda launched a massive attack on the United States of America that shook the US economy, its leader Osama Bin Laden has been killed by US troops in Pakistan. Announcement of his death was timed perfectly with the US elections.

With the US economic recovery still on shaky grounds, Obama being re-elected as the United States President for a second term seemed unlikely. However, announcement of Osama's death, may swing votes in favour of Obama. Obama had said "If I am president I will put an end to Osama," and he has done just that.

As CNN rightly said, millions of citizens were waiting to hear these words and Obama's chances look ripe for a second term in the White House.

Oil price relief?

Question now arise whether oil prices would abate post the fall of Al Qaeda's leader.

First let's understand how Al Qaeda controlled oil prices.

Al Qaeda, through numerous video's, audio's and Internet messages, had made it overwhelmingly clear, that the American economy would be greatly affected at their hand. It was part of their extensive plan to destroy America

Al Qaeda's destruction of oil pipelines and refineries resulted in rising costs of gasoline and the ripple effect of that was felt all over America.

The most significant risk to oil production in the kingdom is an Al-Qaeda attack emanating from Yemen. Al-Qaeda has targeted Saudi's energy infrastructure on several occasions, most notably during the 2006 attempted truck bomb attack on the Abqaiq complex, the world's largest oil processing facility, a report said.

There had also been fears that Al-Qaeda could take advantage of the recent wave of destabilizing unrest in Yemen to plot new attacks targeting Saudi Arabia, thus causing a further spike in oil prices.

Now with its leader being assassinated there are possibilities the attacks may be reduced. "Al-Qaeda is still a threat and it's independent from Bin Laden, but I think to the extent that he has been an important rallying point for that ideology, it's a positive," said Jeremy Friesen, commodity strategist at Societe Generale to livemint.com.

In fact, Oil prices fell by more than a dollar on Monday on reports that al-Qaeda leader Osama Bin Laden is dead and after Nato air strikes over the weekend killed one of Libyan leader Moammar Gadhafi's sons.

ICE Brent crude for June fell $1.08 to $124.81 a barrel, still within $3 of last month's 32-month high above $127, while US crude slid $1.61 to $112.28 at 8:48am.

Global stocks rise

Global stocks have picked up on news of Bin Laden's death. The dollar rebounded from three-year lows and US crude slid more than 1% on Monday on the back of news that a US-led operation killed Osama bin Laden in Pakistan.

By lowering national security risks overall, this is likely to bolster equity markets and lower US Treasury prices in a reverse flight to quality movement," said Mohamed El-Erian, Chief Executive Officer and Co-Chief Investment Officer at PIMCO, which oversees $1.2 trillion assets.

The Indian stock markets haven't, however, taken positively to the news and have been volatile. Analysts believe the terrorist death would renew confidence into developed markets, thereby, redirecting FII flows from emerging markets. India is now on high alert and fear further 26/11kind of attacks.

Will aid to Pakistan stop?

Pakistan had been steadily denying that it was harbouring Osama. "Our reaction from day one to such stories is clear," Deputy Information Minister Samsam Bokhari had said. "He is not here." However, after Osama being found and killed in Pakistan will America stop supporting Pakistani militants?

In his official statement Obama was going out of his way to sound deferential to Pakistan and to emphasize that Osama was an enemy of Pakistan as well as of America. This may have been in order to avoid an outrage from Pakistan.

So it remains to be seen how US would now treat Pakistan.