At the time of writing, the world's eyes are on Libya and the struggle of opponents of Colonel Gaddafi who are trying to topple him. There is a massive refugee problem and the country's economy is in chaos.

CAN WE IGNORE THESE PREDICTIONS? WHERE WILL IT ALL END?

What started as an uprising in neighbouring Tunisia and then spread to Egypt has already resulted in the toppling of both regimes. It now looks like putting an end to the decades old regime of Colonel Gaddafi, although it could end in an ugly stalemate. But trouble has also spread to other countries in the region as populations wake up to the fact that people power can bring about change. Protests, demonstrations and bloodshed have now occurred in Yemen, Bahrain and even Saudi Arabia. The latter perhaps is the most worrying as the country, whose rulers are friendly to the West, is the world's largest oil producer. Disruption to supplies from that country could have serious consequences, especially if any change of regime took an unfavourable stance towards the West. Iran, which has been suppressing antigovernment demonstrations of its own, is likely to take more than a passing interest in events as the political landscape changes. While religion has not played a dominant role in the various uprisings to date the Sunni - Shia balance in the region may become another complicating factor.

THE IMMEDIATE FINANCIAL IMPACT

When there is conflict in the Middle East the first thing to react is the price of oil. Americans are perhaps the first to feel this as the price at the pumps very quickly reflects the traded price of crude. They are still more fortunate than Europeans, particularly the Brits, who pay almost twice as much again due to the heavy tax on petrol. In Indonesia the fuel subsidies continue to protect consumers from such shocks but the country itself has to pick up the tab. Airlines will be quick to increase fares to reflect the higher cost of aviation fuel. The price of gold has already risen to record levels as investors look for safe havens. Usually in times of crisis the US Dollar strengthens. This has not been evident so far. Neither have we seen any signs of serious nervousness in the stock markets - so far!

POSSIBLE OUTCOMES

Positive scenario - As we move into the second week of March the relative calmness of the world's stock and currency markets would imply that the present conflicts will have favourable outcomes. This certainly appears the case where Tunisia and Egypt are concerned. If this is the scenario we will probably see global growth continuing and a continued gradual recovery in the US and Europe from the financial abyss of late 2008 and early 2009. Asia is likely to continue to lead the world in growth and Indonesia will share much of the success, held back only by poor infrastructure.

Negative scenario - If the conflict in Libya drags on and much worse, spreads to major oil producing countries like Saudi Arabia, we are going to see extreme oil prices again and an inevitable global economic slowdown. Stock markets could crash and there would be a flight to safety, which usually means the US Dollar, US Treasuries, the Swiss Franc and gold. Even the US and European countries could see political and economic turmoil with a spate of protests and demonstrations there too as national and local governments increase austerity measures to stay afloat. Indonesia, which is now a net importer of oil will be forced to rush through the planned removal of petrol subsidies for motor cars, a move which will create huge anomalies and opportunities for profiteering. A disaster in the making. Steady increases over time would be less painful and more acceptable but lessons of the past have yet to be learned. Food prices will escalate on a global scale and this will lead to more tensions.

HOW WILL EVENTS AFFECT OUR OWN FINANCES?

Clearly this will depend on which of the above scenarios emerges. We cannot go through life imagining the worst is always going to happen. (If the ancient Mayans are correct we need not be concerned beyond 21st December 2012 anyway!)

But at the same time, wise financial planning must take into consideration various possible scenarios, which would include the negative one above.

Anyone approaching retirement with limited liquidity would be wise to sell some stocks following the recent good run, just in case. But long term investors should look at history which shows us that crashes are invariably followed by recoveries, some admittedly slower than others. Bubbles, such as the technology bubble of the late 90's, the Japanese stock market bubble of the eighties or the housing bubble pre-2008 are another matter. They can take decades to recover but right now there are no obvious bubbles in the markets.


It is probably not too late to invest in precious metals and energy-related funds but last year or earlier would have been better!

Cash is a safe bet during times of crisis but if you hold on to it for too long opportunities will be lost. And cash is a poor investment over time.

ABOVE ALL - DIVERSIFY!

A successful investment portfolio is likely to contain a wide selection of assets, ranging from cash paying no interest, currencies, stocks, bonds, hedge funds, commodities and property through to higher-risk exotic investments such as forestry and litigation funding. It is important to build up gradually from a strong cash position. Only experienced investors should venture into the more exotic assets. But if you are able to invest in most or all of the above you are likely to feel less impact from shocks to financial markets that occur from time to time. We also need to understand the markets and how global events affect them. While large and rapid changes to portfolios are rarely advisable it is important to monitor events and trends and make gradual adjustments as necessary. We need to remain alert and adapt to changes. In the world of finance, as in most other fields, nothing stays the same for long.

WATCH THIS SPACE!

Coming back to the political turmoil in Libya and elsewhere, thankfully we have already had our share of such experiences in Indonesia, in 1997 and 1998, and the country has moved on in terms of the democratic process since then. Events in the Middle East are far from played out. The next few weeks could see a tightening of control by existing surviving regimes or we could see an escalation of events and the toppling of more regimes. Where personal finances are concerned the 'fasten your seat belt' light has just come on - again.

Colin Bloodworth has worked as a financial adviser in Indonesia since 1992. He is Director of PPI Indonesia and can be contacted at colin.bloodworth@ppi-advisory.com or +62 21 3004 8024