Something Just Snapped In Saudi Arabia

Tyler Durden's picture

Following yesterday's budget (deficit) and the 'sacrifice-the-people's-comfort-for-the-death-of-US-Shale' plan that we detailed here, it appears market concerns about Saudi Arabia's forward-looking health are rising. As Bloomberg reports, USDSAR 12-month forwards jumped 250pts (the most since December 2007) to 725bps (the highest level since March 1999) implying expectations of a looming de-pegged, devaluation. Perhaps just as worrying is this is the same pattern that played out in August as Yuan weakness sparked HIBOR stress, leading to SAR forward weakness and then US equity market collapse.

Earlier today, we parsed Saudi Arabia’s budget report in order to determine if the kingdom’s fiscal nightmare was better or worse than market expectations. 

As it turns out, it was better. This year’s deficit is expected to come in at around 15-16% of GDP, considerably below the 20% some analysts feared. For 2016, it looks as though the number should be somewhere in the neighborhood of 13%, broadly in line with expectations. 

Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October.

The problem is that deviating from any of the points outlined above has consequences. Allowing oil prices to rise risks putting uneconomic US production back online, dropping the riyal peg would be a significant black swan event for markets and would represent a landmark break with three decades of precedent, and easing up on the subsidies risks creating the type of social unrest that occurred elsewhere in the region during the Arab Spring. 

Well it looks like when it came time to choose, the Saudis decided that the people will have to suffer because today, Saudi Arabia raised the price of domestic fuel by up to 40%.

And that’s not all. 

Prices for gas, diesel, kerosene, water and electricity were also raised.


But now it seems the market is pricing in the probability of breaking the peg too...

Saudi Riyal Forwards blew wider (implying weaker Riyal relative to the USD) by the most since 2007 and to the weakest since 1999...


And, more worryingly, we have seen this pattern of global pass the illiquidity hot potato contagion before...


Deja vu all over again? Or more blowback from The Fed's liquidity withdrawal as it ripples around the world's collateral chains?

Charts: Bloomberg

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deKevelioc's picture

This is the end, beautiful friend, of all elaborate plans, the end.  


Tallest Skil's picture

I'm at my wit's end with snapping. If we don't move on to crackle and pop soon, there will be no hope left for men.

Manthong's picture

Heads will roll..

It would be cool if that pertained to the “Royal” ass family and a bunch of evil “Princes”.


StackShinyStuff's picture

No, something snapped in the futures.  Snapped higher.  Again.

johngaltfla's picture

Out of the Ferraris and back on the camels they go....

Four chan's picture

just pumping as much as possible before they are overthrown/beheaded by isis.

Captain Debtcrash's picture
Captain Debtcrash (not verified) Four chan Dec 29, 2015 5:56 AM

Debt (and socialist debt) screwed up proper price discovery in the oil markets after the first leg down, explained here. Bankruptcy in the shale patch is the conclusion in North America, and I thought civil unrest and war would be in the middle east, but hey maybe the markets will do the job.  I still put my money on civil unrest.

VinceFostersGhost's picture



When the going gets weird......the weird turn pro - Dr Hunter S Thompson


The Doctor didn't make it.


Moral of the story....don't get cocky.

dogismycopilot's picture

Not it isn't. The Saudis can operate this way for 7 years with just the cash they have in the bank. They can also access bond markets. They also have an immense amount of assets. They also have the US watching their back. The Saudis aren't going anywhere anytime soon - not unless Iraq can push ISIS back into KSA and then all bets are off for the House of Saud.

Lorca's Novena's picture

These backward inbreds will just change their cash crop to heroin, much like Afghanistan did. Of course, this can only be accomplished with the help of u know who. Long poppy seed sorting machines, i guess....

Right-on Left-off's picture

Will we get a hint tomorrow .......?

Fed-up with being Sick and Tired's picture

Sometimes when I read this stuff, due to my lack of education...I am lost. I do comprehend the currency war issue, with a fight over value to value; what does this lead to anyone???

Manthong's picture

Gee.. it takes time.. and living through the mistakes, loss, pain, regret and if fortunate.. anger, determination, retribution and victory.

That is the path, grasshopper… live it   love it.. or leave it.

It leads to serfdom or freedom..   it is really up to you to influence or determine the outcome or to go burrow somewhere in ignorance and cowardice.

It's not about the counterfeit fraud they call "money" anymore.. it's about laying down to the corporate/politico despots or displacing them.

If you ain’t in the Big Club, for your family’s and future generation’s sake. you should work to disband it.



VinceFostersGhost's picture



Gee.. it takes time.. and living through the mistakes, loss, pain, regret and if fortunate.. anger, determination, retribution and victory.



There are no shortcuts.


I've tried them all.....they don't work.

Squid-puppets a-go-go's picture

it means the investment community doesnt care that the GDP drop isnt as bad as expected, it still expects that the SA currency will significantly depreciate over the course of the next year. And that means there will likely be some capital flight from saudi arabia

conscious being's picture

And then the Depegging of the Dollar to the Ryal. Oil no longer priced in dollars. No need to accumulate dollars. No longer global reserve currency. All unwanted dollars go home.  [Note there are a bazillion more dollars offshore than onshore.] Massive HyperInflation ensues. Bills can not be paid. Social upheaval errupts. The StayPuff Marshmellow Man appears and starts knocking over buildings in Manhatten. Am I leaving anything out?

HamSandwich's picture

Caitlyn Jenner goes back to being Bruce.

Chia-Pet's picture

You left out fighting foreign wars.

Moar woar will fix everything.

css1971's picture

A million unemployed soldiers coming home.

scaleindependent's picture

So who will resist the pressure best. Poor Russians or richy rich Saudis? 

Irregardless, there will be consequences for one and all.

Also, when will the USD be forced to devalue? When Russia is "taken care of"?  By that time, a strong dollar will destroy U.S. competitiveness (one can argue it is a too late) and cause a humongous trade deficit and recession. 

CC Lemon's picture

So when they set up the petrodollar, and the Saudi's got in return a promise to protect the House of Saud, that INCLUDED protection against the poor Saudi people when they rise up in anger because they can't afford water?

mickeyman's picture

Most especially against them.

hendrik1730's picture

It's as simple as this : 70 years ago, the Saoudi's were a desert people fucking camels. Today, they are a desert people fucking us. In another 10 years, they will be fucking camels again. Just because they are genetic morons running on dry oil boreholes. Why do you think Europe is being overrun by illiterate middle-east analphabetic people? Right, I rest my case. And by the way, the EU politicians should be put before a firing squad because of being traitors of their own populace. All of them, no exceptions.

JPMorgan's picture

It's one of those countries where you won't hear a pip out of the people until your wake up one morning to find out the whole country has gone tits up and is in violent revolt.

Johnny Horscaulk's picture
Johnny Horscaulk (not verified) Dec 29, 2015 3:37 AM

part of the Anglo-Zionist Empire's northern and souther wars on Russia and Syria/Lebanon/Iran - Grand Chessboard + Oded Yinon/PNAC

simple enough.

But here's the thing - an obvious countermove were Russia and/or Iran at the point where they understand that US/UK/Israeli aggression and regime change ops will not stop, and that these governments are under the thumb of global, i.e. transnational powers who are bent on destroying all military and economic rivals to global government and Greater Israel...

would involve fomenting a popular uprising in Saudi. The royals are deeply unpopular. So are many of the clerics. Saudi oil is clustered in the largely Shia east, the war in Yemen is far more expensive and otherwise costly than anticipated...

Either way, 2016 looks good for bona fide world war.

Hedge accordingly.

JamaicaJim's picture

Fuck all this.

Work to make your life fulfilling, in spite of the myraid of global pricks in the Big Club.

Father Time is undefeated, and will get all of us - including every motherfucker banker, politician, and mobster...

Get off their system as much as possible. Live somewhere that makes sense - if not, move there...


SmallerGovNow2's picture

Not sure who whould down arrow that comment.  Must be some liberal, progressive, socialist trolls...

VinceFostersGhost's picture



If we let these bastards go....they're gonna kill all the CO2.....and all the plants are gonna die.


Why do the progressives hate plants?

pluto the dog's picture

as long as we dont have to share accomodation in the afterworld with the useless pieces of shit that rule over us lol

Baby Eating Dingo22's picture

Yep. Something "snapped" every day

The snap you're hearing is the fingers of the elite demanding MOAR

Mewa's picture

The balance of trade metrics are now set up to provide the saudis with the cover to announce shortly a depeg and more importantly that the US dollar is extremely overvalued...Consequently they will accept Yuan, Rubles, and Euro for the payment of oil.....

This will speed up the selling of US treasuries as everyone knows that the Euroclear account is nothing more than a Fed smoke screen for buying their own bonds and a dumping facility for the chinese and Russians....All of a sudden there will be a lot less demand for US treasuries....which means a big reset devaluation of US dollars is not that far off.....

Yellen wants 2% inflation, she will get 15-20% inflation with massive unemployment.....

Now about that comex physical gold and US gold reserves?????? US looks awful naked as the tide is going out.......


Global Observer's picture

The Kingdom has been accepting for payment euros and Yuan for a long time now. It is not something new that they have to do now. It is not a question of what currencies they accept for payment, but what they do with any excess they have, whether they hold the currencies or trade them on the currency markets for another. At the moment they are drawing down on their accumulated surpluses from the past as they are currently running current account deficits, so it is immaterial what currencies they accept as payment as they tend to use up all of them before drawing from their reserves.

The Kingdom can cause an exodus from the US$ if it decides not to accept the US$ anymore and start converting their current US$ holdings into another currency/currencies. But it is the last country on the earth that can do so, even if it is willing to bear the losses that comes with such a move. It is the easiest country for the US to build a case for regime change against and execute. So the Kingdom will be the last country to refuse to accept US$ for its exports.

Niall Of The Nine Hostages's picture

The "people" have to pay a fair price for gas, which would still be well below what people in civilized countries pay. My heart bleeds. 

Look. There's not going to be a de-peg. Saudi Arabia imports essentially everything that makes a living standard above that of a Bedouin nomad possible. Prices would double or triple overnight---a recipe for open revolt.

Back on planet earth Riyadh has what amounts to an unlimited credit line at the Fed. That's not going to be cut off short of the violent overthrow of the House of Saud by Russian tanks. 

buzzsaw99's picture

yeah i think they were basically giving fuel away via subsidies. ironic, the price of oil and gas fell but the citizens of ksa end up paying more. wait a tick, that makes pefect sense in bizarro world which is where we all live. never mind.

runningman18's picture

There will definitely be a Saudi depeg from the dollar, otherwise they would have never suggested the idea publicly.  They are planting the seeds...

WTFUD's picture

Where are these 'civilised countries' you speak of, sir?

Ban KKiller's picture

What do you expect from a county where all the work is done by imported "talent"? Average Saudi man can not even make a cup of tea or cook. As a church state it is a shit hole by definition. 

Youri Carma's picture
A nice brewin recipe for mob shitstormz.
WTFUD's picture

The gifting of surface to air (sta) missiles and other assorted weapons to Jihadi's (terrorists) around the middle-east and the constant warmongering in places like Yemen has over extended the Sodomites much the same as the US Empire.

Last of the Middle Class's picture

And they can't get Obammy to commit a land army to fight ISIS, ISIL or who the fuck ever so they may have to use their own peeps. Jeez I feel bad for them.

Jack Oliver's picture

The Saudis were looking forward to getting the 2026 WORLD CUP !!! If your team loses - you get BEHEADED ! - Russia has just accused them of deliberately manipulating the oil price - also they were likely responsible for the murder of 224 innocent Russians over the Sinai - Putin hasn't released the findings yet for some reason - wouldn't want to be a Saudi anytime - let alone in 2016 !

If Russia proves that the Saudis did the Sinai thing,then they,along with CHINA may place their own SANCTIONS on the Saudis !! The Saudis would then be FUCKED !

Monetas's picture
Monetas (not verified) Dec 29, 2015 6:50 AM

No justice .... no peace .... return all stolen Jewish land to rightful owners .... Greater Israel ..... Muslims withdraw to 750 AD borders ?

Monetas's picture
Monetas (not verified) Dec 29, 2015 6:58 AM

All the hateful attributes .... greed and malice .... the left imputes to conservatives .... are actually embodied in Islam .... but, they get a pass ....if they will immigrate .... and vote for Hillary ?

Monetas's picture
Monetas (not verified) Dec 29, 2015 7:04 AM

Snick .... that's the sound .... of a well executed .... SA parking lot beheading ?

Monetas's picture
Monetas (not verified) Dec 29, 2015 7:09 AM

Parking reserved for Saudi prince .... don't even think of parking here .... your car will be towed .... and your head will be rolled ?

MilwaukeeMark's picture

The Chinese and Russians have looooooooong memories.

If they think they can chose the USA as their current dance partner, support ISIS, shoot down civilian aircraft, invade countries and somehow later switch dance partners when the music changes (US$) they are soooooooorely mistaken.

Mit gefangen mit gehangen


highwaytoserfdom's picture

We have 62 senators that have committed treason not only to America but decency.  Regime change Pax America has to end..   We are in an information age and  Police state has to go.    

This is crony warmongering Corporate fascism wrapped in hedge fund money changers and the fee/rent chasers stealing honest peoples labor and property. 

Ignorance and collective institutional fraud of technocracy.    THE DNC/RNC/MSM imho are war criminals perpetrating there crimes through education,propaganda, unjust force,  drug poisoning, Religious poisoning (radical, 503c money changers,   ...     

Please FREE Gaza, Free America, Free decency.  Justice to DNC/RNC/CFR it has been 65 years since Marshal Plan where we built Europe after profited from both sides of war.. This technocracy has to stop being hijacked for evil..exertion of force for selfishness.

"The Rothschilds, and that class of money-lenders of whom they are the representatives and agents -- men who never think of lending a shilling to their next-door neighbors, for purposes of honest industry, unless upon the most ample security, and at the highest rate of interest -- stand ready, at all times, to lend money in unlimited amounts to those robbers and murderers, who call themselves governments, to be expended in shooting down those who do not submit quietly to being robbed and enslaved." by: Lysander Spooner
(1808-1887) Political theorist, activist, abolitionist




css1971's picture

Looking at youtube it appears as if the Saudis are getting their arses kicked in Yemen. They roll in tanks unsupported by troops or air cover. Tanks subsequently get RPG'd by Houthis.

FORCE's picture

As the saudi's say; "my grandfather rode a camel,my father drove a cadillac,i drive a bentley/shit custom merc/lamborghini wankerati,my son flies in a helicopter and my grandson will ride on a camel"