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Petrostate Cash Crunch Continues Amid Oil Collapse, Proxy Wars
On Friday we noted that Qatar has now followed Saudi Arabia into the debt markets to raise cash amid slumping crude prices. Specifically, Qatar issued some $4 billion in bonds earlier this month - the offering was oversubscribed four times. Central bank Governor Abdullah Bin Saoud Al Thani said simply, “Interest rates are low in Qatar now so we decided it was the right time to issue these bonds and sukuk.”
Indeed, but it’s clearly not all about interest rates although, as we said last month regarding the Saudis’ return to the bond market, there’s something hilariously ironic about the fact that one reason crude prices have remained so low is that ZIRP has kept capital markets open to insolvent US producers allowing them to stay in business longer than they otherwise would have, effectively making the war to maintain market share longer and more painful than the Saudis had figured on, and that, in turn, has now led Gulf states to tap the very same accommodative capital markets that are keeping their US competition in business.
In short, the fallout from the demise of the petrodollar is becoming impossible to sweep under the rug even as Gulf states are keen to downplay the severity of the budget crunch.
For the Saudis, who need crude at $100 to plug a budget deficit that’s projected at a whopping 20% of GDP, the situation is becoming particularly acute and indeed, the kingdom is now set to slash any “unnecessary expenditures.”
Here’s AFP:
"We are working... to cut unnecessary expenditure," Finance Minister Ibrahim al-Assaf told Dubai-based CNBC Arabia in Washington, where he is accompanying King Salman on a visit.
"There are projects that were adopted several years ago and have not started yet. These can be delayed," Assaf said.
He said the government would issue more conventional treasury bonds and Islamic sukuk bonds to "finance the budget deficit" - which is projected by the International Monetary Fund at a record $130bn (£86bn) for this year.
The kingdom has so far issued bonds worth "less than 100 billion riyals (£17.8bn)" to help with the shortfall, he said, without providing an exact figure.
"We intend to issue more bonds and could issue sukuk for certain projects... before the end of 2015," Assaf said.
And then just hours ago, via Reuters:
Saudi Aramco, the kingdom's state oil giant, is talking to banks about raising a $5 billion loan related to a refinery it built in collaboration with China's Sinopec, three sources with knowledge of the matter said on Monday.
The funds raised from banks will be used to replace some of the capital Aramco invested to build the 400,000 barrel per day (bpd) refinery at Yanbu on the west coast of the kingdom, which can then be deployed in other projects.
In other words, the kingdom needs to borrow if it wants to keep financing projects at current crude prices.
For Qatar, the situation isn't quite as dire. At $65/b, Qatar's break-even price is far lower and the budget gap, so far anyway, is negligible. But that doesn't mean the country's officials aren't acutely aware that the world is now scrutinizing the budgets of petrostates in the wake of collapsing crude and indeed on Monday, Qatari Finance Minister Ali Sherif al-Emadi was at pains to reassure the market that as of now, there's no danger of projects being cut. Once again, here's AFP:
Qatar will not scale back economic development projects or cut state subsidies for fuel and food in response to low oil and natural gas prices, because government finances remain strong, the finance minister said on Monday.
The comments by Ali Sherif al-Emadi set Qatar apart from other wealthy Gulf Arab oil exporting states; the other five members of the Gulf Cooperation Council have begun to curb spending or review costly consumer subsidies because of the plunge of energy prices since last year.
Qatar, the world's top liquefied natural gas exporter, is in the strongest financial position. A Reuters poll of economists last month found them predicting Doha would run a state budget deficit of only 0.7 percent of gross domestic product this year, the region's smallest deficit.
"Our budget is still not that far in terms of deficit," Emadi said at a financial conference, adding that state finances would break even with an average oil price of $65 a barrel. Brent crude is currently around $49.
"I still think the financial situation is very healthy and I don't think we'll take any extra measures for these things," he said when asked whether subsidy cuts were possible.
So while Qatar may be in the best position vis-a-vis its neighbors, when looked at in context, it's not entirely clear that "healthy" is the right word to use when describing the fiscal situation relative to history:

While subsidies are obviously a key consideration for the Saudi budget and also for Qatar, it's certainly worth paying attention to developments in Yemen when discussing the outlook for the two countries' fiscal accounts. As noted earlier today, Qatar deployed 1,000 troops over the weekend after a deadly rocket attack killed 45 UAE soldiers and 10 Saudi soldiers on Friday. If the push to take Sana'a ends up leaving the gulf monarchies mired in a protracted conflict, it could materially impact the region's financial health in the face of persistently low crude and dwindling petrodollar reserves.
We're quite sure we'll be revisiting this sooner rather than later, especially given the fact that Saudi Arabia and Qatar are highly likely to get drawn deeper into the conflict in Syria as well, but for now we'll close by posing the following question to Saudi Finance Minister Ibrahim al-Assaf:
When you talk about "unnecessary expenditures", does this count? ...

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Translation: Houthis fight hard. Let's rape mainland US instead!
Insha'Allah !
Allah Snackbar!
Great concept, I will open one. Should be more interesting than a "Draw muhammed" contest (the lower case "m was deliberate).
My violent death will be ignored by the MSM, except to say that I was a hater.
Hmmm....did I miss anything?
So ME kingdoms are borrowing money to buy weapons, deploy troops and go to war?
Cui bono?
Welcome to the real world and all the fun that goes with it........
sell some of that gold you layed out at the motel 6 last week.
negative feed back loop, cascade failure? more war?
Saudi Arabia and Qatar.
Will treat humans like crap because Sharia law but will issue debt which is against Sharia law. Tyrants be tyrants.
Its not interest, its a % of the profit that just happens to be the
same rate as interset would be.
May the blessings of the Profit be upon you.
Its usary when infidels and apostates not under their tyranny do it to them, but Jizya, (infidel tax), when they do it to infidels and apostates under their tyranny.
It's all about tax jurisdiction.
Just to clarify, jizya in traditional Islamic jurisprudence is a military exemption tax, only payable by non-Muslim adult males who are healthy and of age to join the army. By paying jizya, Jewish and Christian men were exempted from military conscription. While that may seem onerous today, this was the most restrained form of religious taxation in existence through most of the past 14 centuries, including in the Christian world. When the Moors ruled Spain, only a small portion of the non-Muslim population paid the jizya tax. When the Cathoilics reconquered Iberia, all non-Christians, including women, children and the elderly had to pay a poll tax.
Also, most forms of income tax violate traditional Islamic law, so most people at Zero Hedge are closer in thinking to to sharia law than they realize.
LOL... Loved your last sentence....
Amazing how you try to go back hundreds of years to find the last time the Muslimis were less shit than Christians. Too bad you failed anyway, as life was complete shit under Islam, and still is.
Since you like Sharia so much, lets outline Sharia for our fellow idiots.
SHARIA LAW
• Criticizing or denying any part of the koran is punishable by death.
• Criticizing or denying Muhammad is a prophet is punishable by death.
• Criticizing or denying allah of Islam is punishable by death.
• A Muslim who becomes a non-Muslim is punishable by death.
• A non-Muslim who leads a Muslim away from Islam is punishable by death.
• A non-Muslim man who marries a Muslim woman is punishable by death.
• A man can marry an infant girl and consummate the marriage when she is 9
• Girls' clitoris should be cut (per muhammads's words in Book 41, Kitab Al-Adab, Hadith 5251).
• A woman can have 1 husband, but a man can have up to 4 wives; muhammad can have more.
• A man can unilaterally divorce his wife but a woman needs her husband's consent to divorce.
• A man can beat his wife for insubordination.
• Testimonies of four male witnesses are required to prove rape against a woman.
• A woman who has been raped cannot testify in court against her rapist(s).
• A woman's testimony in court, allowed only in property cases, carries half the weight of a man's.
• A female heir inherits half of what a male heir inherits
• A woman cannot speak alone to a man who is not her husband or relative.
If it looks like a duck and sounds like a duck then it's probably a duck.
and hypocrites be hypocrites. No pity for them. They got addicted to the bling, now it is time to pay
but they have enough money to bomb yemen and etc.
When you talk about "unnecessary expenditures", does this count? ...
You should look how Emperor Obama travels... it's 10 times more crazy.Adopting shit fiat currency only hurts the bottom line. Except for Hank Paulson and Goldman Sachs.
ya know ... that last pic .... that's total retard. NEVER go total retard.
"Q99X3, I swear they are not human".
"ffectively making the war to maintain market share longer and more painful than the Saudis had figured on, and that, in turn, has now led Gulf states to tap"
The new normal .0001 percenters here in America also claim the same "painfulness" , even if they aren't investing in infrastructure.
wwxx