The Coming Collapse Of Saudi Arabia

Tyler Durden's picture

Submitted by Nick Giambruno via,

They met in secret to plan a devastating attack...

Two powerful men, colluding at a palace in the Middle East.

In September 2014, U.S. Secretary of State John Kerry flew to Saudi Arabia. He was there to meet with King Abdullah, the country’s ruler and one of the richest men in the world.

Informed observers say Kerry and Abdullah drew up a plan at this meeting to destroy their common enemies: Russia and Iran.

To carry out the attack, they wouldn’t use fighter jets, tanks and ground troops. They would use a much more powerful weapon…


Oil is the world’s most traded commodity. Saudi Arabia is the world’s largest oil exporter. It has arguably more control over the price of oil than any other country does.

Insiders say Saudi Arabia agreed to flood the oil market at this secret meeting. The purpose was to drive down the price of oil. This would hurt Russia’s and Iran’s economies. They both depend heavily on oil sales.

They wanted to hurt Russia for supporting their regional foe, Syrian President Bashar al-Assad. They wanted to hurt Iran for the same reason. Iran is the Saudis’ fierce geopolitical rival in the region.

Their strategy has had some success.

As you can see in the chart below, the price of oil has plummeted over 70% since John Kerry’s secret meeting with King Abdullah in September 2014.

There’s so much conflict in the Middle East—but oil prices are falling.

And despite China’s economic slowdown…it still imported more oil in 2015 than in 2014. China is the world’s number two oil consumer behind the U.S.

Turmoil plus demand says oil should be going up, not down. But the mystery is explained by the Saudis’ oil war and their strategy of flooding the market to bankrupt competitors.

Saudi Arabia’s Other Target

The Saudis have also declared war on the U.S. shale oil industry.

In the 1990s, the U.S. imported close to 25% of its oil from Saudi Arabia. Today—because of high U.S. shale oil production—we import only 5%.

By keeping the market saturated with oil, the Saudis are driving down the price. They hope to drive it down low enough and long enough to bankrupt the shale industry…since shale oil costs more than Saudi oil to produce.

This would knock out a major competitor and let the Saudis regain lost market share.

But economic warfare doesn’t always go according to plan. I think the Saudis made a colossal mistake…

Impaled on Their Own Sword

I think the Saudis have overplayed their hand...big time.

Oil makes up 90% of Saudi government revenue. So the price drop has been very painful. They’re bleeding through their reserves.

The market is putting more pressure on their currency peg than at any time in its history.

For over 30 years, Saudi Arabia has pegged its currency at 3.75 riyals per U.S. dollar. To maintain this, it needs a large stash of U.S. dollars. With its historically large reserves, this has never been a problem.

But now, the Saudi budget is under serious pressure. The government is only staying afloat by draining its foreign exchange reserves. This threatens Saudi Arabia’s ability to support its currency peg.

If the currency peg breaks—which is exactly what the current market expects—the riyal would be devalued. This would increase the cost of living for Saudis across the board.

It would also increase social unrest.

The Saudis are also losing billions underwriting foolhardy wars in Yemen and Syria.

The Saudis thought they could support armed Syrian rebels and topple the Assad government in a matter of months. They figured Assad would fall just as easily as Gadhafi did in Libya in 2011. It was a gross miscalculation.

There’s also the Saudi war in Yemen, Saudi Arabia’s southern neighbor.

The Saudis launched the war in March 2015. They wanted to reinstate a Saudi-friendly government. The Saudis thought the intervention would last a few months, then they’d declare “mission accomplished” and go home. That’s not what happened.

The political and economic stars are aligning against the Saudis. It’s their most vulnerable moment since the kingdom was founded in 1932.

Crisis Investing 101

The Saudis are having some success. In the past year, at least 67 U.S. oil companies have filed for bankruptcy. Analysts estimate as many as 150 could follow. The shale oil industry is in “survival mode.”

And the crisis in the oil market could spread. That’s because many banks made big loans to these distressed shale oil companies. A wave of bankruptcies means those loans could go bad, which would be a huge threat to those banks.

It has the potential to trigger another meltdown in the financial system. The warning signs are there.

I wouldn’t own any bank that has big exposure to risky shale plays...nor keep my life savings there.

The Saudis have damaged the U.S. shale oil industry. And they’ll continue to cause more damage. But they won’t bankrupt every producer.

The shale industry has more staying power than Saudi Arabia. Some producers now say they’re profitable with $40 oil. And their pace of innovation will drive that even lower. The industry will survive.

All the Saudis have done is create an existential crisis for themselves.

If the Saudis don’t stop flooding the market—and there are no signs they will—they won’t be shooting themselves in the foot... but in the head. Saudi Arabia will either collapse or surrender—and stop flooding the market.

Either way, oil will eventually go a lot higher.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
SMG's picture

Petrodollar death coming soon.  Saudi is the key.

zeropain's picture

man these guys must be holding some toxic energy bonds.  the desperation is sad.  oil to 20 and stay there til SEPT.  good luck trying to raise money til then.

Stackers's picture

It wasn't just any day in September that Kerry went to Saudi Arabia either.

It was 9-11-14


Where did you find that topless picture of Chris Christie?  And why do you insist on exposing the rest of us to it?

chicaboomboom's picture

According to some, both Saudi Arabia and Israel are the twin pillars of America's control of the Middle East. And if one falls the other falls also.

cheka's picture

that's why frbny stands at the ready to steal every dime from us to prop them up


fading this article's hype

daveO's picture

13 years to the day. Why do I wonder if they sacrificed 13 yr old virgins on an altar?

jughead's picture

like you can find 13yr old virgins anymore

Perimetr's picture

The war is going according to bankster plans.
The Saudis hold $3 trillion in US Treasuries. Bring down the House of Saud and erase the debt.

BuddyEffed's picture

Comes off as a feel good story, emphasis on the story. Believable? Or manipulative spin?

MalteseFalcon's picture

"Either way, oil will eventually go a lot higher."

Not soon enough to save most of today's players.

And not above $70 in your lifetime.

Seeing Red's picture

You're consistent I'll grant you that mr. no-peak-oil.  Troll?  Bot?  Shill?

TheFutureReset's picture

Calling someone a shill is the giveaway for social engineering.

jughead's picture

"And not above $70 in your lifetime."

I wish...but incorrect.  

lincolnsteffens's picture

Followers of Jim Willie will have heard his theory that the US has lead the Saudis down a path to destruction. The aim is not just to make them useful in stirring up the ME but when the Kingdom collapses the US will repudiate the 3+ trillion USD worth of treasuries which is the largest single country holding of US Foreign Reserves.

That's one way to wipe out debt. Now let's see who else has a big stash. Oh, whoops, its the Chinese. Better look someplace else.

daveO's picture

A pivot toward Iran makes sense. Meanwhile, SA sells treasuries to fund operations. As they run out, their currency(country) collapses. UN sends in 'peace keepers'. Big oil grab. President Trump says they owe us the oil for keeping the peace.

Freddie's picture

Dr. Willie also said over a year ago that the USA and London were stealing the Saudi gold in London.

Willie's old buddy in the gold market (old German guy - the voice or something) is pretty plugged in to the gold market.

Dickweed Wang's picture

Dr. Willie also said over a year ago that the USA and London were stealing the Saudi gold in London.


He has basically said that the USA (and their western lackeys) stealing gold is behind most of the wars in the 20th century . . . starting with the Russian's gold prior to the Bolshevik revolution.  He's said that much of what is going on today with the West vs. Russia is about the Russians trying to get that gold back.  Willie has been right far more often than he's been wrong . . . .

Galahad Threepwood's picture

The Golden Jackass also pointed out that when SA collapses, the US will just write off all those trillions of treasury bonds.



Dickweed Wang's picture

. . . . the US will repudiate the 3+ trillion USD worth of treasuries which is the largest single country holding of US Foreign Reserves.


It's actually over 5 trillion in US treasuries that will be written off when the house of Saud goes by by . . . .

4freedom78's picture

Better say Saudi f**king Arabia death coming soon. And by the way why let this backward turd get usd for oil, it was not easier to bomb their shit tend after ww2 and make it another us state. A lot of problem solved.

TradingIsLifeBrah's picture

If you are waiting for Saudi Arabia to collapse, you will be waiting for a very long time. The current oil price is not going to breakdown their empire, they've been through low oil prices before. There would need to be something else.

booboo's picture

Their demise will not depend on oil prices, it will have everything to do with the kind of enemy that can't be purchased with oil soaked dollars and they are making new enemies every day and just because yesterday was like today don't mean tomorrow will. Borders and regimes change by the day. It would not surprise me a bit if Langley does not have a whole floor devoted to burning them.

lincolnsteffens's picture

Protests/riots in Mecca possibly going on this week?? Supposedly workers not having been paid their salaries for over a month.

jughead's picture

Before they were not meddling militarily with their neighbors.  Those who fail to learn the lessons of history...

A82EBA's picture

gold movin up good now

Vint Slugs's picture

Please.  You've been around long enough to not be sucked into that logical black hole.

Soul Glow's picture

Put your $$$ where your mouth is and buy some puts.

Linglishboy's picture

maybee i will DGLD, why dont you do the opposite.

Automatic Choke's picture

better yet, if you really have guts, sell some naked calls.


Kefeer's picture

If they don't crush it at 8:30am, that is the plan.  Did it on Tuesday and it went very well.  In and out same day.

Demdere's picture

Another plan that failed.  Standard problem with plans, they so rarely work.

SparticusUK's picture

The 50-50-90 rule perhaps?


If there's a fifty -fifty chance it'll fail 90% of the time.

David Wooten's picture

"Informed observers say Kerry and Abdullah drew up a plan at this meeting to destroy their common enemies: Russia and Iran."

This is BS. Oil prices are falling because demand is falling for oil, commodities and just about everything else due to the aging and indebtedness of societies in Europe, Japan, the US, and China.  Anyone who doubts that should check the Dow Transports.  Last year, while the rest of the market was flat, the Transports dropped 15%.  Demand is falling and there is nothing the Saudis, the Russians and the frackers can do about it.

lincolnsteffens's picture

If they tightened supplies enough the supply would be less than the demand. Eventually prices would rise. That wouldn't help for long though as it would only hasten the economic downturn. Speed of the downturn is relative to where you stand in the supply chain.

DaveyJones's picture

Gail the Actuary (formerly Oil Drum) would agree

This is not to say the House of Saud and our bastards aren't trying to cook up things. But there is no honor amongst thieves and I'm sure we have a few alternative plans which include not being loyal. Both the House of Saud and the House of Sam are falling and there are many variables. .

theallseeinggod's picture

It's a combination of both. The Saudis have increased production and the western economies and China decreased their demand. That's why it got so low, much lower than the Saudis probably expected.

Grandad Grumps's picture

This is complicated ... but it was not too hard to determine that the the Saud had been stabbed in the back and that they were the targets all along... as I mentioned here 18 months ago. (unless the Saud are selling out all of Islam because they are Osiris {Baal} [Marduk]/Isis {and all her aliases} worshippers)

There were two paths to Persia in the Brookings report. Only one went through Syria ... and since Mecca is Mystery Bablyon where the "black rock" or "black stone" is kept the depth of the intrigue seems endless.

oncefired's picture

Bit more explaining Grumps?

Grandad Grumps's picture

Been thinking about whether to reply or how to reply. After Bear-Sterns and Lehman I started asking questions and reading (constantly). The mechanics of how Lehman happened, including the laws passed that made it possible, was pretty obvious ... but there is so much more. Ya peel back one deception and there is another, and another and another. You think you have it all figured out and then another piece of information blows everything apart. So, it has been 7 1/2 years of reading and redefining what reality looks like.

Honestly, I cannot tell you if what looks like today's version of reality is really what it is, but it is holding together pretty good and as events are happening, they are making sense instead of nonsense. The problem though is that to get to where I am now, you not only have to suspend disbelief, but toss away pretty much all of the paradigms we have been taught ... and just go with "how do all of the things that are happening fit together?" and it helps to know some of the bible, have some experience with what might be called the paranormal/real spirituality and know some real history.

To just tell you what seems to be happening and why would sound plain crazy ... but I have slowly been making comments in this direction on ZH for the past couple of weeks.

cheka's picture

the oil production suppression cartel is just following orders

fossil fuel - one of the greatest scams ever

along with 'free' trade

we really are be sheared by those that create/control the 'facts'

WTFUD's picture

' I think the Saudis have overplayed their hand . . big time '

Yes, they're Deluded . . just like the Neocons in DC . . not to forget their Euro Treasonous Vassals.

DAESH should go back home to Saudi & Turkey and do their worst . . . i think i could support this action.

Wahhabi Scum

Richard Whitney's picture

Bad article, for several reasons.

In June 2014, well before the September meeting referenced, the Saudis produced 10.5 mbpd.

The last number I saw, probably December 2015, the Saudis produced 10.5 mbpd. Same output. 

Saudis haven't been flooding the market.

China, Europe and the U.S. economies have slowed. Right here on ZH you can find articles about how misleading the U.S. economic statistics are, and how this has been anything but a recovery.

So it is demand that is weak, not supply that is strong. Econ 101, never argue from price.

Now, if you have a case against SA because they harbor Wahhabis, or they mistreat women, or mistreat their guest workers, have at it. But the conspiracy angle doesn't bear scrutiny. I have no admiration for them, nor for Kerry. 

Given how Kerry is giving Iran a pass at every objectionable regarding the nuke deal, and all the concessions he has made to Iran,  how is Iran Kerry's enemy?