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Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump
Early last month in “Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed's Blessing,” we noted the irony inherent in the fact that Saudi Arabia, whose effort to bankrupt the US shale space has blown a giant hole in the country’s fiscal account, was set to tap the debt market in an effort to offset a painful petrodollar reserve burn.
“Saudi Arabia is returning to the bond market with a plan to raise $27bn by the end of the year, in the starkest sign yet of the strain lower oil prices are putting on the finances of the world’s largest oil exporter,” FT reported at the time.
The reason this is so ironic is that at various times, we’ve characterized persistently low crude prices as essentially a battle between the Fed and the Saudis. Many struggling US producers would likely have been out of business months ago were it not for the fact that ZIRP has kept capital markets wide open, allowing otherwise insolvent drillers to stay afloat. Obviously, that works at cross purposes with Riyadh’s efforts to “preserve market share”, and so ultimately, the Saudis are betting their FX reserves can outlast ZIRP.
There are other factors at play here that weigh on Saudi Arabia’s financial situation including two proxy wars and the defense of the riyal peg which is why turning to the bond market is an attractive option especially considering that capital markets are so favorable thanks to - and here’s the irony - the very same Fed policies that are keeping US shale producers in business.
But Saudi Arabia’s “war” with the US shale space isn’t unfolding in a vacuum and now Qatar is looking to borrow to alleviate the financial strain. Here’s more from Bloomberg:
Qatar issued 15 billion riyals ($4.1 billion) of bonds on 1 September as the country takes advantage of low borrowing costs to replenish funds eroded by the decline in oil prices.
The sale, intended to boost the local capital market, was four times oversubscribed, central bank Governor Abdullah Bin Saoud Al Thani told reporters in Doha, without commenting on the bond’s duration or pricing.
Qatar follows Saudi Arabia in raising money from local banks as the slump in oil prices buffets the finances of the Middle East’s largest oil and gas exporters. Saudi Arabia said it tapped local markets in June and August and has raised at least 35 billion riyals from local bond markets this year, the first time it has issued securities with a maturity of over 12 months since 2007. Qatar needs an oil price of $59.1 dollars a barrel to balance its budget, according to the IMF, and on 29 August said its trade surplus fell 56 in July. Crude dropped below $45 a barrel on 2 September.
“The policy of the central bank is to manage liquidity,” Al Thani said. “Interest rates are low in Qatar now so we decided it was the right time to issue these bonds and sukuk.”
Meanwhile, liquidity is tightening across the region, prompting banks to borrow in order to accommodate a slow down in deposit growth. Bloomberg has more:
First Gulf Bank PJSC, the United Arab Emirates’ third-biggest bank by assets, is seeking to raise about $1 billion from a syndicated loan to boost lending as liquidity in the economy tightens, two bankers familiar with the deal said.
The Abu Dhabi-based lender is paying less than 1 percentage point over the London interbank offered rate for the three-year facility, said the people, asking not to be identified because the information is not yet public.
Banks in the six-nation Gulf Cooperation Council, which includes the U.A.E. and Qatar, are turning to the loan market to raise funds in addition to selling bonds as a drop in crude prices threatens economic growth in the oil-producing region. Qatar National Bank SAQ, the country’s biggest lender, borrowed $3 billion via a syndicated loan in March and Abu Dhabi-based Union National Bank PJSC is planning a $750 million 3-year facility, three people familiar with the matter said last month.
Bank liquidity in the U.A.E., the second-biggest Arab economy, is tightening as an increase in lending outpaces deposit growth. The loans-to-deposits ratio of the U.A.E.’s 49 banks climbed to 100.2 percent in June from 95 percent a year ago, rising above 100 for the first time since September 2013.
Of course the punchline to it all is that the fall of the petrodollar has effectively brought an end to emerging market FX reserve accumulation and as the drawdown of those assets tightens global market liquidity and puts upward pressure on UST yields, the Fed will effectively be forced to delay its first rate hike or else will be compelled to immediately reverse itself once the ill-effects of tightening into a tightening become clear. That, in turn, means that the longer the Saudis keep oil prices suppressed and the longer the epic EM FX reserve drawn down continues, the longer the Fed will cling to ZIRP and thus the longer insolvent US drillers will keep drilling and around we go in a vicious deflationary, self-defeating loop.
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OK. Book the loan through Rothschild, GS and JP, pledge oil as collateral via London branches, rehypothicate till the cows wander past.
Financial engineering, Bitchez!
Man, shit abounds, the IB's are gonna have one hell of a 4th quarter!
PS Having done Biz in the region (albeit many years ago) if growth (as in building shit) were to drop to zero, it would not have any impact on the native residents. Everybosy who's a native gets moolah via the principalities. ALl the heavy lifting is done by imported workers and they'd just send them back home when the jobs run out. Seriously.
Yeah well when the world reserve currency is backed with the hopes and dreams of the Federal Reserve Bank this is what happens.
Another nail in the coffin?
VLADIVOSTOK, September 4 (Sputnik) – Tokyo has suggested to Moscow that Russia use the Japanese national currency, the yen, in its transactions instead of the US dollar in order to minimize risks, Tadashi Maeda, the Senior Managing Director of the Japan Bank for International Cooperation (JBIC), said Friday.
Looney
http://sputniknews.com/world/20150904/1026583511.html
Because the Yen is just so frigging stable. One might get slightly suspicious that the house of cards is about to fall down for everybody...all a once.....
Quatar, SA, UAE, Kuwait all going bankrupt?
I'm getting a hard on.
pods
All of the sudden the checks for ISIS will start bouncing...
Jim Willie gives great interview with Paul, says full carnage of oil glut will not become apparent for another month or two as the oil hedges are underwrittten by teh mega banks start to blow up...
https://youtu.be/Dcc3VWrRU30
Wouldn't it be cool if they kept the holiday going on Tuesday with a bank holiday! Americans just love holidays!
That is soooo cynical.
LOL
" Cash for Camels " signs are now not as uncommon as it used to be. I notice their Craigs list shows 10-20% discounts on "Weddings, Stonings and Beheadings."
There also a few BOGO deals: but one Beheading at full price get the second Beheading half off.
Times must be getting tough.
I'm gettin' some cash today, gonna be a LONG weekend
...the Fed will effectively be forced to delay its first rate hike or else will be compelled to immediately reverse itself once the ill-effects of tightening into a tightening become clear."
What's to stop the FED from buying any US debt the Saudi's sell? This would be subsidizing ME competitors. Killing the ME's financial sector will help to preserve dollar hegemony. Western oil co's will be able to step in and buy for pennies/dollar.
"That, in turn, means that the longer the Saudis keep oil prices suppressed..." Yea, right. QE ended almost a year ago. They are being forced to increase production to support the lifestyle to which they have become accustomed.
Sukuk it up, bitchez ;-)
Correct me if I'm wrong, but didn't I just read an article about the end of cheap fossil fuels fucking evertyhting up? I think I'm going cross eyed.
Yes you did. The perceptions management propaganda machine plying you with false energy and climate data for political purposes alone is alive and well.
Alive and very, very active well. Busy busy busy busy.
Ignore that crap. But then again, I'm preaching to the choir with you, Doc. I know you meant that as a cynical sarcastic comment. Unless you got your implant? Don't tell me the reptiles got to you, Doc!
I wondered why I had a sudden desire to bask in the sun and eat bugs.
time for another Ramirez cartoon to end the week on a schizophrenic note Tyler!
Well, can't have it either way where it works. Now we're really screwed.
They can always have Bandar start turning tricks..
...though his ass may still be sore from the vigorous assfucking Putin handed him.
The whole system is a ponzi game.
Bull. The FED's printing the terrorists up some fresh fiat. Ain't never going to and don't expect to get paid back.
It's not just an oil producer ... it's gas too.
Qatar must have felt pain to their revenue as vast volumes of gas came on stream in Australia since mid 2014, going into Japan, China and SKOR. It also won't help that Australia is predicting it will out-produce Qatar, within about 5 years. So their budget is going to get a bit worse. Cartel days are ending.
Utter rubbish.
http://www.bloomberg.com/news/articles/2015-09-04/putin-s-china-energy-d...
You seem to think China is the on;y customer Australia has? Let me break it to you, in 2005 Australia's two-way trade with China was TINY, almost but not quite negligible. Yet Australia somehow still had a large prosperous economy, then, and in every decade prior, back to the 1700s. It's markets grew more than any other country on earth, during the last century. It's doing the same this century, so far.
If China trade disappeared right now, it would be a speed bump for five years, and then we would move on like nothing had happened.
The reality is all of Australia's massive gas projects are on 25 year sales contracts, every last one of them, and their construction phases ended just last year, and the last one this year (i.e. the 25 years of initial supply began about 6-months ago!), so there is not a thing Russia can do to the Australian gas output trajectory. Plus the contracts are with Japan, South Korea, India and China, and the ones with other countries than China, are actually larger.
So Australia is producing under-contract to the biggest G-20 economies and populations in Asia.
Russia isn't. So I seriously doubt Russia will EVER be impinging on Australian trade, in just about anything - probably ever. Reed that Bloomberg link from yesterday kid, it's Russia and Putin who came to the party too late, and now don't have the dance partner, because their partner diversified and double booked, and is now grasping that is has an over-capacity problem, that even more gas will make worse.
Eventually Russia will find its true economic level, and it will probably be less than now. ;-)
..........,,,You're hardly following the case except reading your bloomberg spinoffs. The "pipeline thing" is not remotely questionable, the oil pipelines in in place and happily pumping away. One gas pipe is in, another several will ultimately be built, this year or in 5 years we do not know. China is the major buyer here among other nations . Moreover India buys LNG from Russia also. They werent late to party at all. China will get it at cheaper price than what they get from aussies. As usual your facts are limited .
All buyers get it at market prices. If Putin & Co dream they can sustain production at significantly lower prices, for 25 years, in order to be attractive, well good luck to him let's see it! The Chinese will give him a contract! Will Russia make money that way?
The only question is, who will make the most money doing this, that is the only reason for doing it. If the economics were not right, over 25 years, we would never have done it, we would have left it in the ground for another century. Who cares, as we don't actually need to be doing it. We could have done it 40 years ago, but no market existed for it then. That's why Aust's PM went to China before Nixon did.
The reason why Russia is in the mix here is that the Chinese need to diversify their supply options as broadly as possible, as a strategic necessity. The EU's error was trusting Putin and relying on him to respect contracts, agreements, supply and borders, so China is not making that same strategic mistake.
But there is, at this time, no clear reason nor logic for why China would invest scarce and falling resources in Russia, if China's reserves are otherwise occupied (and getting evaporated) trying to avoid an unavoidable deep market crash, RE crash, historic financial crisis (bigger than 2008), and an industrial crash in parallel.
In other words, there will not be buckets of cash splashing around Beijing anymore on a whim, as this plays itself out, and no reason to invest what is available in Russia for new gas supply expansion that will not be needed, nor usable anytime soon.
So if Putin wants that pipeline anyway, Russian taxpayers will be paying for it - without a long term sale contract.
And welcome back to centrally planned communism, btw, it failed last time and will fail again, because it does not ultimately accept private property and private markets are better - same error China has made again. Australia's contracts are all private initiatives, not government ones, the government has no control over them other than prosaic regulation, and they're based on long-term private economic analysis, not on centrally-planned geopolitical choices for imperious geopolitical capture and control.
So good luck trying that on China, when they can get it reliably in bulk from Australia without any of those overtones or threats. We are only interested in what is profitable, not to use it for geopolitical capture, as the government in Canberra has no 'on-off' switch, like Putin wields over the EU. We're just not interested in leverage and influence pedaling with resources, like Putin is. We are not empire building like Putin is, we're not ultra-nationalist goose-stepping nut-jobs like Putin & Co is.
Our gas switch is on and it will remain on for 25 years, at which time there will be more contracts and more das supply development, because we intend to be the biggets and best adn most reliable supplier on the planet. And if Putin wants to compete, he will have to compete our way (by being more like us and less like him).
That is something Putin can not claim about Russian supply. So the Chinese trust us in the area of business, they also know we're not like America either, we are a part of Asia, not a visitor to it, and we are also in a comprehensive strategic partnership with China, that will extend past these 25 year contracts. We are not going to be making a mess of that relationship, over petty issues.
Unwanted sovereign-risk should not be tolerated in gas deals, and not a part of the deal equation, on either side, but could anyone trust Putin to not be all about that?
Clearly, NO.
So no country or supplier is ever going to corner the energy market in China, nor any other major gas markets, hence Russia is in the mix in China, and also in India.
None of this is mysterious or unusual if your profession is resources, which mine is. So don't wast my time with dreary ignorant blather, thanks. :D
Taxes are coming.....
Saudis consider blanket imposition of urban land tax -report
http://www.zawya.com/story/Saudis_consider_blanket_imposition_of_urban_land_tax-TR20150903nL5N1190INX2/#utm_source=zawya&utm_medium=web&utm_content=top-news&utm_campaign=free-homepage
Tough labor law changes by Oct. 18
http://www.zawya.com/story/Tough_Saudi_labor_law_changes_by_Oct_18-ZAWYA20150903032222/#utm_source=zawya&utm_medium=web&utm_content=top-news&utm_campaign=free-homepage
Amendments in labor law next month
http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20150902255222
IMF Calls For VAT In Saudi Arabia
http://www.tax-news.com/news/IMF_Calls_For_VAT_In_Saudi_Arabia____68904.html
Saudi Arabia urged to follow UAE lead with VAT move
http://www.arabianbusiness.com/saudi-arabia-urged-follow-uae-lead-with-vat-move-603166.html
Saudis consider blanket imposition of urban land tax — report
http://gulfnews.com/business/economy/saudis-consider-blanket-imposition-...
Very interesting ... thanks
Thanks DB.
The tectonic plates have shifted. The mideast no longer has the stranglehold that it had for a generation on a strategic commodity.
Our problem is that our politicos are too brain dead to have felt anything. The possible exception may be Trump.
Luckily for the oil sheiks, they can always go back to goat herding.
The name is Bonds. James Bonds.
Yeah. Bonds. Jaded Bonds.
Fuck big oil - domestic, Saudi or shale gas. It would be a pleasure to see them all choke on $25/bbl.
Hey, these guys have some awesome furniture and rugs they can throw on Craigslist for some fast cash...
Friend of mine.
Friend of ours.
Eat your sand Arabs.
Bye bye Ferrari, hello camel.
Hey they´re back to normal.
Yippee.
Qutar joobux, now there's an oxymoron...
Russia is the target. The "shale space" is the bonus.
Zion is a scheme, not an ethnicity..
Israeli helicopters transport ISIS terrorists injured in Syria battlefield: Report
http://presstv.com/Detail/2015/09/04/427721/Syria-Israel-helicopters-tre...
Qatar is selling bonds because interest rates are favorable??????
I thought lending and borrowing money with interest is illegal in Islam?
Someone enlighten me please.
T Tail
Probably legal to PAY interest, but NOT to CHARGE interest.
Looks like the central banks found some more bonds to buy.
The bankster vultures must be salivating at the chance to put more people in deep debt.