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Saudi Arabia Hemorrhages $19.4 Billion In Reserves During December

Tyler Durden's picture




 

Saudi Arabia - which was busy playing headline hockey with Russia this morning over a rumored 5% production cut proposal - is running out of money.

Yes, we know, that sounds absurd. But believe it or not, the country whose monarch recently rented the entire Four Seasons hotel for a 48 hour stay in Washington DC, is in fact going broke. And at a fairly rapid clip.

The problem: slumping crude. As we first discussed in November of 2014, Riyadh’s move to kill the fabled petrodollar in an effort to bankrupt the US shale complex was a risky proposition. If ZIRP kept US producers in the game longer than the Saudis anticipated, crashing crude could end up blowing a hole in the kingdom’s budget - especially if Iranian supply came back on line and added to the supply glut.

Fast forward a 14 months and that’s exactly what’s happened. US production is down but not wholly out (yet) and the Iranians are adding 500,000 barrels per day in output in Q1 and 100,000,000 per day by the end of the year.

Compounding the problem is the war in Yemen (which will enter its second year this March) and the cost of providing subsidies for everyday Saudis.

All of this has conspired to leave Riyadh with a budget deficit of 16%. That’s expected to narrow in 2016 but at 13%, will still be quite large. Make no mistake, if crude continues to sell for between $30 and $35 per barrel, 13% will probably prove to be a rather conservative estimate.

"This is a quantum leap in all aspects," Abdullatif al-Othman, governor of the Saudi Arabian General Investment Authority, told a conference convened this week to study ways for the kingdom to cut spending and shore up the budget. Here's Reuters:

Stakes in the operations of big state companies, including national oil giant Saudi Aramco, would be sold off; underused assets owned by the government, such as vast land holdings and mineral deposits, would be made available for development.

 

Parts of the government itself, including some areas of the national health care system, would be converted into independent commercial companies to improve efficiency and reduce the financial burden on the state. The number of privately run schools would rise to around 25 percent from 14 percent.

 

Meanwhile, the government would use its massive financial resources to help diversify the economy beyond oil into sectors such as shipbuilding, information technology and tourism, by awarding contracts to new firms and providing finance.

 

Fadl al-Boainain, a prominent Saudi private-sector economist who attended the conference, said he welcomed officials' emphasis on developing parts of the economy that had long been neglected because of the focus on oil.

 

But he added: "The overall economic situation does not support the great optimism that ministers expressed, and it does not support the indicators they referred to.

Meanwhile, the market is betting that the pressure will ultimately force the Saudis to abandon the riyal peg. Keeping the currency tethered to the dollar is yet another drag on the country’s finances and all in all, the kingdom saw its FX reserve war chest dwindle by more than $100 billion through November.

That’s what we mean when we say the monarchy is going broke.

In December, the bleeding continued unabated. Data out today from SAMA shows the Saudis blew through some $19.4 billion last month, as the war chest shrank to $608 billion. 

Thanks to the fact that the composition of the SAMA piggybank is a state secret, we don't know how much of the drawdown was USTs, but it's safe to say some US paper was sold.

As a reminder, the IMF estimates that if current market conditions persist, the kingdom will have burned through the entirety of their rainy day fund within just five years. 

Here's BofAML's analysis of the SAMA stash and how long Riyadh can hold out under various assumptions for crude prices and borrowing.

So even as the Saudis swear the headlines surrounding a proposed 5% production cut are bogus and even if Riyadh managed to weather the storm slightly better in 2015 than some predicted, the kingdom effectively has two choices: 1) cut production, or 2) drop the riyal peg. 

Otherwise, King Salman won't be able to tap SAMA for the money he needs to rent Mercedes S600 fleets - and we can't have that...

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Thu, 01/28/2016 - 18:44 | 7110766 sam i am
Thu, 01/28/2016 - 18:49 | 7110785 toady
toady's picture

Why do bad things happen to good people? 

Thu, 01/28/2016 - 19:12 | 7110873 Vashta Nerada
Vashta Nerada's picture

"the Iranians are adding 500,000 barrels per day in output in Q1 and 100,000,000 per day by the end of the year."

That may be a slight exaggeration. I don't think Iran will be producing 100 million bpd, more than the current world output, any time soon.

Thu, 01/28/2016 - 19:34 | 7110952 zaphire999
zaphire999's picture

so the Saudi's are going to reduce production just as Iran are coming online.

Hahahahahaahahahha

Thu, 01/28/2016 - 19:40 | 7110973 JLee2027
JLee2027's picture

Less than 100 years, probably less than 40 years, they'll be back riding camels with harems and living in tents again.

Thu, 01/28/2016 - 19:48 | 7110994 Occident Mortal
Occident Mortal's picture

"Meanwhile, the government would use its massive financial resources to help diversify the economy beyond oil into sectors such as shipbuilding, information technology and tourism, by awarding contracts to new firms and providing finance."

 

 

Who the fuck would buy a ship built in Saudi Arabia? It's a desert!

Thu, 01/28/2016 - 20:11 | 7111092 mgbkurtz
mgbkurtz's picture

Or tourism. All those women covered head to toe.  I've been there and there's nothing to see.  Even Dubai, I don't really understand the appeal.

Fri, 01/29/2016 - 18:11 | 7115527 svayambhu108
svayambhu108's picture

>
100,000,000 per day by the end of the year.

Tylers you should have this articles review more thorougly, if an enormity like this passes unoticed I get doubts both about Tylers and about the Zeroheaders

its 100,000,000 by the end of the year. period without the per day. that's the Total man Which amount to 273972 barels per day.

Always check your numbers otherwise is embarasing

Thu, 01/28/2016 - 20:13 | 7111097 Al Tinfoil
Al Tinfoil's picture

Now is obviously a great time to diversify into shipbuilding, with the worldwide shipping industry in a downturn and demand for new vessels at Zero, and the shipyards in China and South Korea cutting back production.  Also, who actually works for a living in sectors that require sweating and getting dirty in Saudi Arabia?  The actual workers in SA are from other countries.

  Tourism in SA?  They already get Muslim pilgrims for the Hajj to Median and Mecca, who else is going to go to SA, with the no alcohol laws and religious police?   Information technology?  What are they going to do, import computer analysts from India? 

Fri, 01/29/2016 - 02:18 | 7112278 Kiwi Pete
Kiwi Pete's picture

Maybe they should try goat herding again.

Thu, 01/28/2016 - 20:45 | 7111214 chisler
chisler's picture

It would look like a camel followed by goats.

Thu, 01/28/2016 - 21:31 | 7111348 TeraByte
TeraByte's picture

"Who the fuck would buy a ship built in Saudi Arabia? It's a desert!"
Ever heard of Ships of Desert, Camels. Shipbuilding may be a codename for their camel breeding program financed from desert sand in their coffers.
They are losing a two front war, when trying to create a global caliphate and presuming this could be financed by a small oil cartel after most of competitors were run bust. This latter scorched earth policy already backfired, when e.g. instead of Russia going out from business, it kept on pumping until the price collapsed further and Saudis themselves were cornered. Europe has now had it enough of the master plan to build a mosque to every 100 migrant, many of which now risk deportation instead. ISIL and other similar groups have met heavy headwinds and sliding behind their goals and Saudis soon unable to finance them. Should you get Trump into Pennsylvania 1600, it will be game over.

Thu, 01/28/2016 - 21:59 | 7111463 vollderlerby
vollderlerby's picture

Don't think the cocksuckers will have enough money left for harems.  They can go back to being cocksuckers.

Thu, 01/28/2016 - 19:39 | 7110968 Seek_Truth
Seek_Truth's picture

It's very early in the year to nominate you, but I, for one, nominate you, Vashta Nerada, for the most idiotic comment of the year 2016 award on ZH.

Let's see how things work out this year, shall we?

Thu, 01/28/2016 - 20:29 | 7111168 swmnguy
swmnguy's picture

There's some serious irony taking shape over here.

Thu, 01/28/2016 - 20:40 | 7111202 Baby Bladeface
Baby Bladeface's picture

Seek Mathematics

Thu, 01/28/2016 - 20:52 | 7111240 chisler
chisler's picture

Yes misprints have their victums, like people who shoot and then ask.

Thu, 01/28/2016 - 21:01 | 7111265 Seek_Truth
Seek_Truth's picture

Indeed.

I know what the Tylers meant- the typo notwithstanding.

Thu, 01/28/2016 - 19:14 | 7110881 COSMOS
COSMOS's picture

At this rate they can last six years about. But things may get shaky before then. Also the big question is will the FED just print a shit load of cash for the Saudis, after all they are S E M I T E S.

Thu, 01/28/2016 - 19:36 | 7110951 Bilderberg Member
Bilderberg Member's picture

Camel meat is an underated dietary source.

Having vast control of the world's greatest commodity and still go bankrupt, not just anybody can pull that off.

Thu, 01/28/2016 - 19:47 | 7110998 macholatte
macholatte's picture

not just anybody can pull that off.

 

+10 LMAO

 

... and it couldn't happen to a nicer bunch of folks.

Maybe the ONLY good thing Barry did was avoid being the nigger for SA and wasting our blood & treasure for their benefit in Yemen and elsewhere.  Maybe.

 

Thu, 01/28/2016 - 20:31 | 7111174 swmnguy
swmnguy's picture

Oh, it's early yet.  We have no idea what the US Deep State would do if SA starts circling the drain with some acceleration.

Thu, 01/28/2016 - 20:38 | 7111195 August
August's picture

Yes, little Barrack may have been one of those "blessings in disguise".

The USA could well have had President John McCain.

Thu, 01/28/2016 - 21:07 | 7111284 strangeglove
strangeglove's picture

if they had Money they'd B Jews

Thu, 01/28/2016 - 20:29 | 7111166 Al Tinfoil
Al Tinfoil's picture

The Saudi financial problems pose a risk to the PetroDollar system under which the Saudis and other OPEC members sold oil only for US Dollars and recycled their US Dollars from oil sales into US Treasuries and other investments on Wall Street.  This system has done wonders to maintain the US Dollar as World Reserve Currency since the closing of the Gold window by President Nixon in 1971 (when the USD was taken off the Gold standard).

The liquidation of US Treasury and Wall Street holdings by the Saudis to cope with budget deficits reverses the investment flow and has US Dollars flowing out of New York to SA. 

Also, there is an increasing portion of oil sales by OPEC members for currencies other than the USD - to China for Yuan, to India for Rupees, to Europe for Euros.  Russia has signalled that it wishes to sell oil for anything but USDs.  

The status of the USD as World Reserve Currency and the constant demand for USDs for oil purchases from OPEC has, up to the present, allowed the United States to engage in huge fiat printing, run large deficits, and run up huge debts without impairing the trading value of the USD.  If the PetroDollar system crumbles, the USD will be at serious risk.

Thu, 01/28/2016 - 22:20 | 7111537 scaleindependent
scaleindependent's picture

Why are the Saudi's pushing hard on the oil pumping throttle if they are hemorraghing funds?  Why did the US sell their oil reserves at very low oil prices?  

IMO, it is a economic war against Russia and Iran. Who will last the longest?

Is Russia's calling for 5% decrease in OPEC oil production their way of crying uncle?

Oil is dirt cheap because of this.  It will likely go lower, but it is time to buy for  any  country that needs reserves.  (Hint China)

Thu, 01/28/2016 - 22:43 | 7111616 scaleindependent
scaleindependent's picture

Oh,  

 

What happens if Russia is sturdier and more resilient than what the West thinks?  

IMO that will lead to a worsening of this Saudi, US economic warfare against Russia. The US may likely co-opt Iran.

 

If this economic warfare persists and Russia hunkers down then the FED will allow deflation, cause deflation ( a very low oil price) will destroy Russia.  

This may explain Yellen's TIA/brain attack during her speech.
She knows she is the fall guy. 

Fri, 01/29/2016 - 06:32 | 7112487 AvoidingTaxation
AvoidingTaxation's picture

Everybody has his tanks already fulls and there are gigantic ships full of oil everywhere. 

Fri, 01/29/2016 - 00:04 | 7111931 vollderlerby
vollderlerby's picture

So the Saudi war chest is 600 billion.  What's ours? Negative 12 trillion. Are you fucking kidding me?

Thu, 01/28/2016 - 19:02 | 7110838 chubbar
chubbar's picture

OT and sorry for the thread jack but here is a new article on Hillary that really spells out what I always thought was going on, high treason.

http://www.americanthinker.com/blog/2016/01/hillarys_email_scandal_now_p...

Memories of the Walker family spy ring and British double agent Kim Philby could be resurrected if a new angle of the FBI investigation works toward its logical conclusion.  Catherine Herridge of Fox News reports that the FBI is going directly to the intelligence agencies that generated the assessments to determine the original classification level.

The investigators "will go directly to depose specific individuals in agencies who generated the highly classified materials."

This is the prudent and smart thing to do in order to get specifics on the classification authority and to compare original documents with those that were stripped of classification markings.  But there is potentially something deeper and more sinister going on.

Recently, Col. Mike Ford reported to A.T. readers and scooped the rest of the media, explaining how U.S. classified computer systems work and how material stored on the systems cannot electronically "spill" or "jump" between systems.  In other words, it takes a conscious act to print, copy, scan, etc. classified documents and then put them on an unclassified system.

That the investigators are going to the source of the documents is actually just scratching the surface of what could be a major scandal encompassing the agencies themselves.  Just because the State Department has JWICS (Joint Worldwide Intelligence Communications System) and connectivity to the I.C. (intelligence community), that doesn´t mean Hillary, Cheryl Mills, Huma Abedin, or even most people at State INR (Bureau of Intelligence and Research) would have access to SAP (Special Access Program) material.  There are only certain people who read on to specific programs.  Bosses would not necessarily have access to programs their own analysts are working on and vice versa; that's why they're called compartmented.  In fact, Fox News confirmed that at least one email had an "HCS-0" marking, which is extremely sensitive HUMINT information.

The JWICS recognizes those individuals who have been read on to the different compartments – or not.  In my opinion, the underlying reason to go to the sources of the assessments is to not only determine original classification, but to root out those who had access to those programs.  This means Clinton-friendly members of the I.C. who were read on were not only "grossly mishandling" classified information, but committing espionage within the I.C. itself.

It was not long ago that reports surfaced about Hillary's informal intel network and the Clinton tactic of securing patronage jobs in the intelligence community for promoting their own interests.  This is why the intelligence source in the Fox News report said, "The bureau [FBI] does not waive its primacy in espionage cases."

The FBI appears to have moved from a criminal investigation into an espionage investigation.

Read more: http://www.americanthinker.com/blog/2016/01/hillarys_email_scandal_now_potentially_a_matter_of_high_treason.html#ixzz3yYk2Jwuq 
Follow us: @AmericanThinker on Twitter | AmericanThinker on Facebook

 

 

Thu, 01/28/2016 - 19:13 | 7110877 Bastiat
Bastiat's picture

Prediction:  Cankles withdraws from the race under threat of indictment.  She is loathe to do this as being president will allow her to cover her tracks so Obozo grants her clemency in the final weeks of his presidency.  By the time that's over, anyone the Dems put up would rally the faithful. 

Thu, 01/28/2016 - 19:50 | 7111015 NoDecaf
NoDecaf's picture

Prediction: It actually goes down, they indict her somewhere after the first few primaries.

If she is losing to Sanders, it's blood in the water, the political backlash can be minimized. If she is beating or tied with him and they indict, her backers will cry fowl louder but the move can also be spun as upholding the rule of law.

Thu, 01/28/2016 - 20:09 | 7111084 Bastiat
Bastiat's picture

Clemency is a lock, imho.  She gets that to shut up and go away.  Imagine the things she might have to say if they throw her under the bus .  .  .

Thu, 01/28/2016 - 20:30 | 7111170 ebear
ebear's picture

"Imagine the things she might have to say if they throw her under the bus . . ."

Not if they use a real bus.

Thu, 01/28/2016 - 22:17 | 7111524 BigJim
BigJim's picture

Stop it, you're making me wet.

Thu, 01/28/2016 - 18:46 | 7110772 skinwalker
skinwalker's picture

When shit gets thick, the royal family will trundle into their private jets, head to London, and live off the money they have hidden away. The rest of the country becomes mad max. 

Thu, 01/28/2016 - 18:49 | 7110787 Gregory Poonsores
Gregory Poonsores's picture

Who plays Toecutter?

Thu, 01/28/2016 - 19:16 | 7110889 COSMOS
COSMOS's picture

Skinwalker, it wouldnt surprise me when they bail that they also take away that meteor rock inside that cube in the heart of Mecca and either plant it in Mecca 2.0 (London or Brussels)

Thu, 01/28/2016 - 20:05 | 7111072 Yen Cross
Yen Cross's picture

 That was pretty funny. 

Thu, 01/28/2016 - 18:58 | 7110818 trader1
trader1's picture

wouldn't they have to apply for asylum like everyone else?

 

Thu, 01/28/2016 - 19:01 | 7110833 toady
toady's picture

Diplomatic immunity. 

Thu, 01/28/2016 - 18:48 | 7110780 KesselRunin12Parsecs
KesselRunin12Parsecs's picture

Never any price deflation in hookers & blow

Thu, 01/28/2016 - 18:48 | 7110781 johngaltfla
johngaltfla's picture

The bigger problem: Russia will not even entertain cutting oil production until Saudi Arabia and Qatar stop funding ISIS and terrorism against Assad in Syria.

So the race to bankruptcy is between the House of Saud and Putin; bad news for the Saudis, the Russians have ChiCom backing...

Thu, 01/28/2016 - 18:57 | 7110817 Winston Churchill
Winston Churchill's picture

This has become very personal,not business at all.

Hard to see either side blinking first.

Thu, 01/28/2016 - 22:45 | 7111626 scaleindependent
scaleindependent's picture

It is war. Truyly economic war, which might transform to a shooting war.

Thu, 01/28/2016 - 19:47 | 7111001 chairman mao
chairman mao's picture

I don't think China has been backing Russia at all, it's all verbal support and UN votes, nothing material.

China won't let them collapse, but Russia isn't on the brink of collapse yet.

Thu, 01/28/2016 - 21:52 | 7111425 johngaltfla
johngaltfla's picture

Uh, mao, wake up. They are freely using the Reminbi to buy Russian oil and nat gas. Believe me, that props Russia up to not have to use USD.

Thu, 01/28/2016 - 21:26 | 7111336 Gambit
Gambit's picture

Also, Russian economy is far more diversified and Russia has been inking energy and military hardware deals unbaiting for the past year or so; and Russia's population is far more resilient that SA.  For fucks sake they survived Napoleon, Hitler, the Bolsheviks and NATO encirclement. My money is on Russia and Putin. 

Thu, 01/28/2016 - 22:46 | 7111632 scaleindependent
scaleindependent's picture

Yes, Russia hopes China has their back.

 

But are you sure?

Maybe China is waiting for Russia to crumble, so that it can take a big bite out of it.  In a world of Realpolitik and back knifing, this is what you'd expect.  

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