Oil soars over $35 a barrel and remains there for more than 45 days in June and July after King Fahd, longtime leader of Saudi Arabia, dies and his heirs fail to decide quickly on a new leader. The world learns that Fahd has numerous full brothers, half-brothers and sons with competing claims to the throne.
Half-brother Prince Abdullah bin Abdul Aziz Al Saud, long expected to take King Fahd's place, decides that both he and full brother Prince Sultan bin Abdul Aziz Al Saud are too old for the job, and sidesteps the line of succession by naming one of his own sons to lead the country. Fahd's full brother Prince Sultan, commander of the 100,000-man Saudi armed forces, objects -- and has his men attack Abdullah's 60,000-man national guard. Another full brother, Prince Nayef, the current minister of the interior who wields tremendous power within Islam as head of the Supreme Committee of the Hajj, attempts to broker a compromise and is assassinated.
As the world looks on with horror, full brother Prince Salman, 67, head of the Saudi intelligence forces and the closest to Wahabi fundamentalists, emerges as the apparent winner of the power struggle and, in one of his first official acts, closes American military bases in the kingdom. U.S. equities swoon by 15% as investors fear higher energy prices and political turmoil will kill the broadening global economic recovery.
Order is restored when President Bush sends in warplanes to back Prince Abdullah's side, and both Sultan and Salman's forces are crushed. Oil prices return to the $25-a-barrel range by late August, and the U.S. armed forces are able to retreat to their Riyadh barracks by the fall.
The Federal Reserve keeps interest rates at 45-year lows through all of 2004, despite the rise in jobs and the strengthening economy. Stocks decline in November as investors are certain of a rate hike in December, but the monetary policy leaders remain on hold by claiming the recovery is still tenuous and by noting a continued lack of inflationary pressure.
Gold prices plunge from the $485 level back to the $375 area in the late spring as central banks around the world flood the market with supply at those prices. Analysts declare that the selling has popped a metals bubble. Stocks of tiny gold and silver miners, which had emerged from under $1 to the $5-$10 range, collapse by 50% in a run for the exits. But just as the decline gets out of hand, the Saudi crisis emerges and metals prices stabilize. This turns out to be the best long-term opportunity to buy into the gold and silver rally since late 2002, and the yellow metal ends the year at $510.
Government corruption emerges as the next phase of the mutual fund scandal, as prosecutors allege that four mid-level bureaucrats at federal regulatory agencies were criminally complicit in the market-timing and late-trading scandals that rocked the industry in 2003. Plea-bargain agreements show the regulators were offered high-level jobs at mutual funds upon their exit from government and were wined and dined in the Caribbean and Aspen, Colo., in return for their agreements to tacitly sanction the behavior.
Jon Markman
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