By Glen Carey and Mohammed Hatem

(Updates with Amnesty International comment in ninth paragraph, markets in 11th and 12th.)

Feb. 15 (Bloomberg) — Rallies in Bahrain to demand democracy and an end to discrimination against the Shiite Muslim majority escalated after the death of a second demonstrator, as unrest in the region also led to clashes between protesters and police in Yemen.

Thousands of Bahrainis gathered at the Pearl Roundabout traffic intersection in Manama, the capital, shouting slogans against the government after the funeral of a protester killed in clashes with police yesterday. A second protester died today in fighting at the funeral, the official Bahrain News Agency said, as police fired rubber bullets and birdshot and used tear gas. The main Shiite opposition group suspended its work in parliament, and the king pledged political and social change.

In Yemen, stone-throwing protesters clashed with police as they marched toward the presidential palace, the fifth day of demonstrations calling for an end to President Ali Abdullah Saleh’s rule. Iranian security forces yesterday used tear gas to break up the biggest anti-government protests since the aftermath of the disputed presidential election in June 2009.

Popular demands for democracy and civil rights, invigorated by the mass protests that toppled Egypt’s Hosni Mubarak last week, are rattling the autocratic rulers of a region that holds about three-fifths of the world’s oil reserves. Brent crude futures rose yesterday to the highest in more than two years.

Oil Production

The protests in Bahrain, home to the U.S. Navy’s Fifth Fleet, and Iran mark the spread of unrest into the Persian Gulf, the area where most Middle Eastern oil is produced. Many Gulf states including Saudi Arabia and the United Arab Emirates are U.S. allies. All of the region’s governments are classified as autocratic regimes in the Economist Intelligence Unit’s 2010 Democracy Index.

Shiites, who represent as much as 70 percent of Bahrain’s population, say they face job and housing discrimination from the ruling Al Khalifa family and its supporters. King Hamad bin Isa al-Khalifa, a Sunni Muslim, has ordered an increase in food subsidies and social welfare payments, and a grant of 1,000 dinars ($2,653) to each Bahraini family.

The funeral cortege was carrying the coffin of Ali Abdul Hadi Mushaima, draped with Shiite flags, to the dead man’s village as demonstrators shouted “Down with Khalifa.” They were referring to Prime Minister Sheikh Khalifa bin Salman al- Khalifa, the king’s uncle, who has held the premiership for four decades.

Spiraling Events

“Clearly events are spiraling downwards as violence mounts,” said Theodore Karasik, director of research at the Dubai-based Institute for Near East and Gulf Military Analysis. “More people may be killed and this will likely bring more protesters onto to the streets. If pressure mounts too much and the kingdom is in danger, there may be outside intervention.”

Rights groups including Amnesty International have condemned the violence. “Like many in the region, those in Bahrain who feel their dignity has been compromised are demanding change,” Malcolm Smart, Amnesty’s regional director, said in a statement today. “The authorities must listen to these calls, rather than retaliating with violence.”

Foreign Minister Khalid bin Ahmed bin Mohammed al-Khalifa said in an interview yesterday that protests are “sanctioned by the law” in Bahrain and won’t have the same effect as the popular movements in Egypt and Tunisia.

Bahrain’s dollar bonds due 2020 fell, sending yields up 24 basis points to 6.38 percent, the highest level since the debt was issued in March, according to data compiled by Bloomberg. The cost of insuring Bahrain’s bonds against default jumped 19 basis points to 262, the highest since August 2009, according to CMA prices for credit-default swaps.

Oil Markets

Brent crude for April settlement dropped 53 cents, or 0.5 percent, to $102.55 a barrel on the ICE Futures Europe exchange in London. Yesterday it rose to $103.08, the highest settlement since September 2008, after the Egyptian army dissolved

“Fear that civil unrest could spread into oil-producing states in the Middle East is keeping investors nervous,” said Andrey Kryuchenkov, an analyst with VTB Capital in London.

Iran is the second-largest producer in the Organization of Petroleum-Exporting Countries, producing about 3.7 million barrels a day, according to Bloomberg data. Bahrain pumped about 32,000 barrels a day of crude in 2009 and 1.49 billion cubic feet of gas, according to the national oil and gas authority.

Bahrain experienced clashes between Shiites and police before parliamentary elections in October. The royal family has close ties with Sunni-ruled Saudi Arabia, the largest Arab economy. Many among Bahrain’s populace retain cultural and family links with Shiite-dominated Iran, Saudi Arabia’s main regional rival.

Cairo Protests

“People are saying that this is our Tahrir Square,” said Nabeel Rajab, head of the Bahrain Center for Human Rights, in an interview during today’s march. He was referring to the focus of protests in Cairo that led to the ouster of Mubarak.

King Hamad earlier said that the process of political and social change “will not stop,” the Bahrain News Agency reported. The monarch has ordered an investigation into the killing of protesters, Al Arabiya television said.

Bahrain held elections in October to a 40-member parliament that can only pass laws with the consent of an upper chamber whose members are chosen by the king. The Shiite al-Wefaq group won 18 of the seats.

The group will suspend its parliamentary role until the protesters’ demands are met, Abduljalil Khalil, a senior lawmaker, said in an interview today. “No one will accept cosmetic changes,” he said, adding that al-Wefaq’s demands aren’t influenced by Iran.

Yemeni Demands

Protesters in Yemen are demanding that Saleh quit after 32 years in power. The president said on Feb. 2 that he won’t seek to extend his term when it expires in 2013 and that his son wouldn’t succeed him as president. At least 17 people were injured and 165 detained in the capital, Sanaa, Xinhua news agency reported yesterday, citing witnesses.

Unlike Bahrain, the Yemeni government — which is struggling to quell separatist movements and halt al-Qaeda operations based in the country — can’t afford to try to buy calm by offering economic benefits. Yemen faces serious water shortages, declining oil output and a society where more than half the population of 23 million is under 20 years old. About 40 percent of Yemen’s population lives on less than $2 a day.

Petroleum production and refining account for 60 percent of Bahrain’s export receipts, 70 percent of government revenue and 11 percent of gross domestic product, which was about $22 billion last year, according to the CIA World Factbook.

Arab Revolts

Iran’s opposition movement says it has drawn inspiration from the Arab revolts that removed Mubarak and Tunisia’s Zine El Abidine Ben Ali. It accuses Supreme Leader Ali Khamenei and President Mahmoud Ahmadinejad of meeting popular demands for change with violent repression.

Yesterday’s demonstration in Tehran was backed by opposition leaders including Mir Hossein Mousavi and Mehdi Karrubi, who challenged Ahmadinejad in the 2009 election and said the result was rigged. Tens of thousands of protesters were dispersed by security forces using tear gas and baton charges, Al Jazeera television said. Two people were killed in the unrest, state-run Press TV said.

In Egypt, the army took control after Mubarak’s resignation on Feb. 11 and has pledged to oversee a rewriting of the constitution to prepare for free elections. Tunisia is also preparing for elections under an interim government after Ben Ali’s Jan. 14 ouster, and opposition groups including the main Islamic movement are competing with representatives of the former ruling party to steer the transition.

source: businessweek.com

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