Given how markets are responding thus far, Osama Bin Laden's death is likely to have a modestly positive and buoyant effect on equity markets. Business abhors uncertainty. With Bin Laden gone, one major source of uncertainty is removed, along, one hopes, with his hallmark of large-scale coordinated violence.
A net positive effect may ensue in Libya. On one hand, Qaddafi claims al Qaeda as an adversary, so Bin Laden's elimination might be construed as adding to the Libyan tyrant's self-confidence and sense of his own endurance. On the other hand, the deadly and deft force wielded by the U.S in taking down one bitter enemy could undermine Qaddafi's confidence in his own survival and encourage his willingness to depart. If Bin Laden's takedown hastens Qaddafi's departure, Libya's relatively small contribution to global oil supplies is likely to resume. In that case, uncertainties may also abate among the larger oil suppliers, and rising oil futures prices may be reversed. We are already seeing signs of this sequence.
Any positive effects of Bin Laden's death could be offset by plausible worries over terrorist acts galvanized by elements of the al Qaeda network in Yemen, the Arabian Peninsula, Pakistan, and Indonesia. These terrorist enclaves may vie for stature or seek to exalt Bin Laden's status as a martyr by stepping up their own terrorist acts. A flurry of smaller-scale, but numerous and widely dispersed, terrorist acts could have a chilling effect on global direct investment.
Another chain of events more conjectural than those described, yet possibly more potent than all of them together, concerns how Bin Laden's demise will affect the financing of international terrorism. Some putative terrorism experts had viewed Bin Laden dismissively as a voice from the past and one whose influence had waned as Qaeda evolved toward its more decentralized current structure. Their conclusion was that Bin Laden's demise would not have much, if any, effect on the risks of terrorist acts because these are undertaken by the separate entities in the network.
That was before the U.S. captured his hard drives and other records that reflected Bin Laden's direct involvement in planning terrorist activity from within his walled compound. The circumstances surrounding his location and his modus operandi reminded us that he has been the principal fundraiser for global terrorism from Morocco to Indonesia, and from Europe to the United States. It is not coincidental that two brothers (now deceased) who owned the Bin Laden compound in Abbottabad were professional moneychangers (hawala). Neither is it implausible that one of the brothers had been Bin Laden's trusted courier for many years, presumably functioning in the hawala circuit as both recipient and dispenser of the largesse that Bin Laden's unique status attracted, in addition to subventions financed by his personal wealth.
Dramatic, large-scale terrorist acts depend on the availability of adequate financing to cover their costs of planning, recruiting, training, and equipment. Because Bin Laden's demise is likely to disrupt the sources of funding, it may be reasonable to expect a diminution in the numbers and scale of such acts. If his followers respond with smaller scale terrorist acts, these may be more readily managed by seasoned law enforcement. The risks of small-scale attacks are sometimes insurable, and indeed precedents in insuring against such risks already exist in the experience and practices of Lloyds, Allianz, and AIG. It is to be hoped, if not confidently forecasted, that business will be encouraged as a result.
Dr. Charles Wolf Jr. holds the distinguished chair in international economics at the RAND Corporation.
