Over the past month or so, we’ve spent quite a bit of time detailing the effect the death of the petrodollar has had on Saudi Arabia’s financial position. Recapping briefly, Riyadh’s move to Plaxico itself in an effort to bankrupt the US shale space late last year has forced the kingdom to draw down its petrodollar reserves to ensure that ordinary Saudis aren’t affected by plunging crude. Add in a proxy war (or two) and you get a budget deficit of 20% to go along with the first current account deficit in ages. The cost of maintaining the riyal’s peg to the dollar doesn’t help either.
The situation described above has caused the Saudis to tap the debt market to help fill the gap and indeed, some estimates show the country’s currently negligible debt-to-GDP ratio climbing by a factor of 10 by the end of next year.
But make no mistake, all of the above should not be mistaken as a suggestion that the Saudis aren’t rich - very rich, and if you had any doubts about that, consider the following description from Politico of King Salman's arrival in Washington for his first meeting with President Obama:
In anticipation of King Salman bin Abdulaziz of Saudi Arabia’s stay, the Four Seasons hotel in Georgetown has done some redecorating — literally rolling out red carpets in order to accommodate the royal’s luxurious taste.
Eyewitnesses at the property have seen crates of gilded furniture and accessories being wheeled into the posh hotel over the past several days, culminating in a home-away-from-home fit for the billionaire Saudi monarch, who is in Washington for his first White House meeting with President Barack Obama tomorrow.
“Everything is gold,” says one Four Seasons regular, who spied the deliveries arriving at the hotel. “Gold mirrors, gold end tables, gold lamps, even gold hat racks.” Red carpets have been laid down in hallways and even in the lower parking garage, so the king and his family never have to touch asphalt when departing their custom Mercedes caravan.
The guests staying at the 222-room hotel for the next couple of days are all part of the 79-year-old king’s entourage of Saudi diplomats, family members and assistants, one source said; a full buyout of the entire property was reserved for the visit. Guests who had booked to stay at the Four Seasons during the royal visit have apparently been moved to other luxury hotels in town. A call to the Four Seasons confirmed the hotel is sold out Thursday, Friday and Saturday nights.
King Salman, who ascended the throne in January, has a habit of displacing commoners for his own comforts; this summer, during a sojourn to the French Riviera, his eight-day stay forced the closure of a popular beach, enraging locals. Salman rolls deep, with a reported 1,000-person delegation joining him for his seaside August vacation.
Wall St. Journal reporter Carol Lee snapped this photograph of Salman's entourage arriving at Andrews Air Force Base on Thursday:
Saudis seem to have enough vehicles for King Salman's visit - the car fleet parked at Joint Base Andrews pic.twitter.com/Gk4aLzuVL2— Carol Lee (@carolelee) September 3, 2015
The king will reportedly discuss a number of rather pressing issues with the Obama administration including Riyadh's involvement in Yemen, where, as we detailed on Thursday, a former US counterterrorism "success story" is now on the verge of splitting into two separate countries. Of course the Iran nuclear deal will also come up, especially in light of the fact that, as The New York Times noted earlier this week, "Republicans are considering legislative options to counter the deal, including the possible reimposition of sanctions the agreement is supposed to lift," now that the President has secured the support he needs to sustain a veto of a GOP challenge.
Perhaps more importantly, the two leaders will also discuss Syria and oil prices, with the latter issue now having a rather outsized impact on America's shale producers as well as on US majors' capex plans. Needless to say, the real question from a geopolitical perspective is whether Obama and King Salman come to any closed-door agreements on Syria where, as Al Jazeera delicately puts it, the US and Saudi Arabia are set to orchestrate a "managed political transition."
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Meanwhile, over at The White House blog: