Saudi Devaluation Odds Highest In 20 Years, Kingdom Now More Likely To Default Than Portugal

Tyler Durden's picture




 

On Monday, we brought you “Saudi Default, Devaluation Odds Spike As Mid-East Careens Into Chaos,” in which we outlined the jump in riyal forwards and widening of CDS spreads that Riyadh witnessed in the aftermath of the kingdom’s move to cut diplomatic ties with Iran.

In short: the market is getting worried that Riyadh is about to careen into crisis. In the face of slumping crude, the Saudis are staring down double digit budget deficits and the prospect of having to once again tap debt markets in order to offset the SAMA burn and keep the kingdom from having to implement further subsidy cuts.

The open hostilities with Iran all but guarantee the war in Yemen will escalate (just today for instance, Tehran accused the Saudis of bombing the Iranian embassy in Sana’a) and that entails a further drain on the kingdom’s finances as the monarchy will be forced to fund a prolonged and intractable struggle with the Houthis.

Additionally, the more tension there is between Riyadh and Tehran, the more fractious OPEC will become and with Iranian supply set to rise in the new year as international sanctions are lifted, this may well be one Mid-East conflict that drives oil prices lower rather than higher - especially if the SAR peg falls.

On Thursday, in the wake of a veritable meltdown in markets across the globe, riyal forwards hit their highest level in almost two decades as oil plummeted. As Bloomberg notes, “twelve-month forward contracts for the riyal climbed 260 points to 950 as of 3:49 p.m. in Riyadh, set for the steepest close since December 1996 [reflecting] growing speculation the world’s biggest oil exporter may allow its currency to slide against the dollar for the first time since 1986.”

Meanwhile, Saudi CDS spreads are now wider than those of Portugal. 

So just to drive the point home, Saudi Arabia, which entered 2015 with virtually no debt and an FX reserve war chest that amounted to around three quarters of a trillion dollars, is now viewed as less creditworthy than a country where a coalition of socialists, left-wingers, and communists just overthrew the government.

"Allahu Akbar"? 

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Thu, 01/07/2016 - 18:25 | 7014106 Ghordius
Ghordius's picture

+1, "Never confuse a Coalition with Alliance"

Thu, 01/07/2016 - 12:29 | 7011749 Chris P
Chris P's picture

If you look at the debt levels to GDP versus all of the developed countries Saudi is in better shape and will remain so for the next decade. So I don't see the truth in this atricle. They can keep selling debt until the price of oil comes back.

Thu, 01/07/2016 - 12:54 | 7011959 Nexus789
Nexus789's picture

Not while they burn money fighting a war with no end. The Russians will eat into their contracts and the oil price could come back if they start a regional war. But they won't benefit for obvious reasons.

Thu, 01/07/2016 - 16:15 | 7013321 fajensen
fajensen's picture

How will they service their debt if their many wars escalate and the Saudi oil facilities are bombed out of comission? They are acting like "one cannot have too many fronts" and at the same time they have no industry to take into underground bunkers and no food. Everything is imported, in the case of a hot war, Saudi will have to pay war prices - 20, 30 times above going rates. Not much left for bondholders then. 

Thu, 01/07/2016 - 12:30 | 7011755 Iam Yue2
Iam Yue2's picture

Saudi Arabia’s economic time bomb | Brookings Institution.

 

http://www.brookings.edu/research/opinions/2015/12/30-saudi-arabia-econo...

Thu, 01/07/2016 - 12:32 | 7011771 David Wooten
David Wooten's picture

The Saudis are trying to bait Iran into war.  Iran should not start anything with the Saudis.  Let them sink into ruin and sink their creditors in the process.  If they keep provoking Iran, Iran should remain diplomatic until it is impossible for the US government to deny Saudi aggression.

Thu, 01/07/2016 - 12:36 | 7011803 ghostzapper
ghostzapper's picture

So why are they starting shit in Yemen anyways?  The answer should confirm to you that oil is not nearly as scarce as the Banksters would have you believe as you suck down their flouridated water.

Thu, 01/07/2016 - 12:42 | 7011850 Duc888
Duc888's picture

 

 

It takes two to Tango.  Western Banksters and the House of Saud.

All that money and never enough left over for a nose job. 

Thu, 01/07/2016 - 12:50 | 7011933 NEOSERF
NEOSERF's picture

Start selling the assets Greek-style Saud...looks like selling a 30% stake in Aramco will bring in $300B which will keep them afloat for quite a while.

Fri, 01/08/2016 - 01:31 | 7015733 Hope Copy
Hope Copy's picture

Put it where.. Qatar, Dudai??  Poof.. by magic... it's gone.    $300B for what?  Precision munitions?  Right on.. Poof.. it's gone..  Misdirected by that wonderful commie technology.  1/2 year for that at best.  Look what they have already gone through.

Thu, 01/07/2016 - 13:01 | 7012027 Yen Cross
Yen Cross's picture

  The Rothschilds will save the Saudis with some of those 100 year Puerto Rican muni bonds.

Thu, 01/07/2016 - 13:20 | 7012152 silverer
silverer's picture

WTF x3 !!   What did you guys do with the money?  The billions that rolled in for decades?!  Jeez, we know you'd beat the crap out of your wives if they spent it without explicit authorization.  So WTF?!  Did you really have to diamond stud your motorhomes?  I mean, c'mon!

Thu, 01/07/2016 - 13:29 | 7012220 cookies anyone
cookies anyone's picture

This made my day

Thu, 01/07/2016 - 13:29 | 7012225 Spectre
Spectre's picture

Damn those ragheads got big-ass Noses.

Thu, 01/07/2016 - 13:42 | 7012318 Son of Captain Nemo
Son of Captain Nemo's picture

Damn those ragheads got big-ass Noses.

Just like their Master(s) at  32.0667° N, 34.8000° E "only whiter"

Thu, 01/07/2016 - 13:40 | 7012303 Son of Captain Nemo
Son of Captain Nemo's picture

 

 

 

"How to Kill a Zionist"

    For Dummies

Thu, 01/07/2016 - 14:00 | 7012433 Watson
Watson's picture

>>>
Meanwhile, Saudi CDS spreads are now wider than those of Portugal.
<<<

Just shows what a mess CDS is.

SA has no material public debt, and has a lot of something essential to the world.

PT has lots of debt, a dodgy banking system, and no real assets (apart from being nice holiday destination).

Watson

Thu, 01/07/2016 - 14:11 | 7012510 Jacksons Ghost
Jacksons Ghost's picture

Ninjas, please. No default ever. USA backstopping these fuckers. In return, they pump when we tell 'em to. Have you noticed? They have done alot of pumping, even to their own detriment. They continue on this suicide course, because they know we got their back.

Look at the bigger picture. Stop the BRICS, pry IRAN away from the BRICS sphere and above all else protect the Petro Dollar.

Thu, 01/07/2016 - 16:18 | 7013351 fajensen
fajensen's picture

That's what Saddan thought too. As Sir Humprey said: "You have to stand behind someone to stab them in the back"!

Thu, 01/07/2016 - 14:18 | 7012569 E.F. Mutton
E.F. Mutton's picture

I hope I live long enough to see the House of Saud overthrown and the entire kingdom living in tents.  That would give me a chuckle.

Thu, 01/07/2016 - 14:39 | 7012716 Son of Captain Nemo
Son of Captain Nemo's picture

I see many many, many beheading(s) of the Royal House of Saud.

And if they all wind up at their beach house(s) in Saint Tropez we can always provide an all expenses paid vacation to the masses back home to "BYOB" - BRING YOUR OWN BLADE!!

It will be the feast the "little people" of Saudi Arabia will never forget!!!!

Thu, 01/07/2016 - 15:03 | 7012880 ChargingHandle
ChargingHandle's picture

I fear a world conflict is approaching. So much instability in the world that affects all continents. (minus Antarctica because it actually growing in size due to so much NEW ice this year)

Thu, 01/07/2016 - 15:17 | 7012962 HopefulCynic
HopefulCynic's picture

Allahu Ackbar!!!!!! 

Thu, 01/07/2016 - 16:42 | 7013503 BetaGap
BetaGap's picture

Portugal will never default.

 

Just because it is part of EUROZONE - Infinite Bailout Land

Fri, 01/08/2016 - 00:25 | 7015590 onmail1
onmail1's picture

<-- CabalA$$LickerLiarAddictObamma to Saudi King :

"Ok you are going fine,

create conditions to start war with Iran,

then invade Iran & grab all its oil fields ,

our CIA guys will help you covertly in every manner, 

we have ensured that they dont have any nuclear weapons

so the time is right

kill all shias and their leaders

especially their Khameini

who speaks too much against America

occupy Iran

you will get lots of oil business

to last for many decades

& after you ocuppy Iran

I will permit you to raise the prices 

of oil & gas, not before".

 

Fri, 01/08/2016 - 01:21 | 7015715 Hope Copy
Hope Copy's picture

Don't make me lsugh harder!

Do NOT follow this link or you will be banned from the site!