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Page added on December 10, 2015
More than money at risk for Saudis
Saudi Arabia’s rulers have long maintained stability with the help of welfare spending and subsidies. But as the oil dependent country’s crude revenues sink, the world is watching for political troubles.
Social unrest in Saudi Arabia is unlikely to ratchet up significantly in the next few years, analysts tell CNBC. But if crude prices remain low, and Saudi finances continue to deteriorate, King Salman bin Abdulaziz may find it more difficult to tackle civil unrest in the future.
Falling revenue could exacerbate dissatisfaction among religious minorities, the upper class, or royals, analysts said.
Saudi Arabia is the chief architect of OPEC’s policy of maintaining crude output at roughly 31 million barrels per day, a level that has forced producers of higher-cost hydrocarbons — including the United States and Russia — to balance an oversupplied market through production cuts.
But as U.S. and Russian drillers prove more resilient than most industry watchers had expected, oil prices have stagnated, putting pressure on Saudi finances.
On Friday, the Organization of the Petroleum Exporting Countries agreed to continue its current policy, sending crude futures lower. On Monday, internationally traded Brent crude fell below $41, to its lowest price since February 2009.
Last year, Saudi Arabia announced a $229 billion budget for 2015, its largest ever. As a result, the International Monetary Fund projects a 19.5 percent deficit for the kingdom this year.
To cover the gap, the nation has burned through about $91.5 billion of its reserve assets, reducing total foreign reserves from a peak of $746 billion last August to a still-healthy $654.5 billion in September, according to the IMF.
In August, the Financial Times reported that Saudi Arabia was seeking to sell about $5.3 billion in sovereign bonds per month through the end of the year. The Saudis’ borrowing ability is considerable, but they could find themselves mired in debt, just as they did in the 1990s and early 2000s, said Matthew Bey, energy and technology strategist at Stratfor.
“From a social perspective, one thing to keep in mind is that the perception of Saudi Arabia as a wealthy country is false. You have an increasing number of poorer Saudis in the country who feel disenfranchised in an environment in which the politics of the country are changing.”
If low oil prices and high spending persist, the Saudis will be forced to reduce spending on social programs, energy subsidies and education, Bey said. The challenge for the royal leadership will be making reductions in areas that will not elicit social backlash, he added.
Saudi Arabia “is still a security state. It will rely on its social apparatus to manage unrest going forward,” he said.
Reached by CNBC, the Saudi embassy in Washington did not have immediate comment.
A reduction in subsidies would have domestic political consequences, and may affect the royal family’s tacit social compact with the country’s elite, said Simon Henderson, director of the Washington Institute’s Gulf and energy policy program.
Henderson asserted that most Saudis are conservative and do not desire social change. “They look at the chaos in the rest of the Arab world with horror,” he told CNBC in an email.
While Saudi Arabia is by no means on the verge of collapse, risks are currently under-appreciated, said Hani Sabra, head of Eurasia Group’s Middle East and North Africa practice.
“If you look at the Achilles heel of a lot of countries in the Arab world, they have had a pact with people. You get cheap gasoline and energy, you live in a welfare state, and you don’t open your mouth,” Sabra said.
Like almost every predominantly Arab country, Saudi Arabia has a Sunni Muslim majority. But it faces ongoing protests from members of its Shiite minority and long-simmering dissatisfaction among Muslims who do not subscribe to the strict, conservative brand of Sunni Wahhabism embraced by the monarchy.
Earlier this year, the BBC documented three years of continuous demonstrations in an eastern, largely Shiite region that sometimes turned violent. Activists frequently cited poor economic prospects for residents in an area that is home to the Ghawar oil field, the largest conventional field on earth.
“From a social perspective, one thing to keep in mind is that the perception of Saudi Arabia as a wealthy country is false,” Sabra said. “You have an increasing number of poorer Saudis in the country who feel disenfranchised in an environment in which the politics of the country are changing.”
The fractured nature of opposition groups works in the royal family’s favor, Sabra said, but the current political climate is also breeding dissatisfaction at the top.
Following his ascension to the throne this year, King Salman named his son, Mohammed bin Salman, deputy crown prince — making him second in line in the Saudi succession — after earlier appointing him defense minister and chairman of the country’s economic council.
That consolidation stands to exacerbate a structural problem with the growing Saudi royal family, Sabra said. Hundreds of royals are clamoring for a piece of the pie, and with low oil prices and power increasingly concentrated in bin Salman, the pie is shrinking.
If those royals are frozen out, many of their wealthy constituents who once had access to the halls of power could create unrest in the upper class, Sabra said. Within the royal family, the chances of a significant rift remain unlikely in the short- to medium-term, but the outcome has increased from very low to credible, Sabra said.
“I am sure there are divisions in the royal family, but the question is whether groups of princes are prepared to do anything about it. I suspect it may be too late,” Henderson said.
The deputy crown prince may now wield enough power to weather any challenge to his authority, he added. Only a disastrous oil policy or dissatisfaction with Saudi Arabia’s ongoing intervention in Yemen’s civil war — the first major act under Mohammed bin Salman — could tip the scales, he said.
Bin Salman’s regional posturing is a growing concern in some quarters. Last week, Germany’s Federal Intelligence Service, the BND, said it was concerned about Saudi Arabia’s foreign policy under Mohammed bin Salman, in a rare instance of public criticism.
“The thus far cautious diplomatic stance of the elder leaders in the royal family is being replaced by an impulsive interventionist policy,” Reuters quoted the BND as saying.
24 Comments on "More than money at risk for Saudis"
makati1 on Thu, 10th Dec 2015 7:28 am
Saudi Arabia’s day’s are numbered. Can’t wait until it falls. Back to camels, boys.
paulo1 on Thu, 10th Dec 2015 7:42 am
I agree, Mak. The problem is going to be scale and mess. It will be bad and may usher in a much wider conflict. There is simply too much oil in the picture, and that is almost always a bad thing.
Davy on Thu, 10th Dec 2015 8:00 am
People who desire Saudi Arabia’s demise do not connect the dots to their food chain. The loss of Saudi oil from global markets is something that could happen with any kind of instability there. The amount of loss is debatable and relative to the type of instability. We can refer to Libya, and Iraq to how far production can fall when instability takes over a county. If there were a civil war or a regional war over Saudi oil fields complete loss of Saudi oil is possible. If the infrastructure is destroyed we could see a generalized collapse of the global system and with it a collapse of the food chain that feeds billions especially in Asia. I would say that loss of Saudi oil could not be allowed to last over a month at most two before the whole global system implodes.
bug on Thu, 10th Dec 2015 8:52 am
What you say Davy is true.
But, since the Saudis and our govt and US oil companies and MIC companies know this. With this,the govt can perpetually back the Saudis with our tax dollars, the
MIC can always profit and oil companies can import Saudi oil. The Saudis can always say “if we fall, you Uncle Sam, are fucked as much as us”. That’s how I see it, and some are tired of it.
Davy on Thu, 10th Dec 2015 9:13 am
Bug, no arguments with absurdity. We should just watch what we wish for at a minimum and at best have a plan B. Many people who will the end of KSA should not be located in large urban areas. They may want ample stocks of food and ammo in preparation.
GregT on Thu, 10th Dec 2015 10:04 am
Saudi Arabia is going to end whether people wish for it or not. Those who are located in large urban areas when SA does end, will be in for trouble. Food prep and ammo will not make the situation in these areas better. The few who have prepared will be overrun by the vast majority who have not. The best plan B is to get as far away from these areas as possible, while the opportunity still presents itself.
Hello on Thu, 10th Dec 2015 10:12 am
If SA fails, it won’t be that bad. It’s a short walk to Europe for the plebs. And Europe surly has welcoming arms for all who knock at its doors, no matter how incompatible the culture.
Heck, with a little sarcasm you could almost say it’s the Europeans who don’t fit in in Europe anymore.
Boat on Thu, 10th Dec 2015 10:13 am
If immediate depletion was an issue shouldn’t that chart be going the other way? Seems like were finding oil faster than we can deplete it. Shouldn’t the doomers be falling to their knees, gnashing their teeth and pulling their hair for begging for forgiveness after so much disinformation.
Mak, is this your fall back position if your other doomer predictions fail? The demise of Saudi oil will kill the worlds economy.
It’s tough to keep up with the changing narrative. Europe nukes Russia because of intervention in the Ukraine and the worlds economy crashes is more likely.
GregT on Thu, 10th Dec 2015 10:29 am
The faster we produce a finite resource the more quickly it depletes. Saudi Arabia produces ~10% of total world oil production. Take that 10% out of the equation and the world’s already faltering economies will go tits up. This isn’t exactly rocket science Boat. It’s basic arithmetic.
This is not a changing narrative, and was discussed in length by Matt Simmons in his 2005 book “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy”. The only reasons why you may be having trouble keeping up, are either because you are in complete denial, or just plain stupid.
apneaman on Thu, 10th Dec 2015 10:39 am
Boat, if there is no depletion then why go to shale and tar sands on the grand scale? Why did they start cranking that up in 2005 and not 1985 or 1995? The shit has been sitting there for millions of years and we have known that it was there for many decades. Boat when it comes to any finite resource do you know at what moment depletion starts?
Truth Has A Liberal Bias on Thu, 10th Dec 2015 2:53 pm
My stock goes up the further civilization falls. I can’t wait for KSA to Balkanize. I’ll be doing great! Lots of folks will be screwed but last I checked they didn’t care much about me so I won’t lose much sleep when they starve. There’s too many people anyway.
GregT on Thu, 10th Dec 2015 3:37 pm
“My stock goes up the further civilization falls.”
When civilization falls Truth, enjoy your stocks. They’ll be great for toilet paper, or firestarter, and not much more.
shortonoil on Thu, 10th Dec 2015 3:50 pm
“My stock goes up the further civilization falls.”
Your stock goes up the more the FED prints; but the two will be getting better synchronized in the near future.
Boat on Thu, 10th Dec 2015 5:10 pm
apneaman
Boat, if there is no depletion then why go to shale and tar sands on the grand scale? Why did they start cranking that up in 2005 and not 1985 or 1995? The shit has been sitting there for millions of years and we have known that it was there for many decades.
Have you been hiding under a rock? Iraq, Iran, Libya, Nigeria all lost oil to the market because of geopolitical conflict. That’s why the prices went up to begin with. High priced oil filled the void after a few years. Now lower priced oil is coming back on the market and pushing high priced oil out. Supply and demand, lost cost producer gets market share. You know, capitalism stuff.
Don’t worry, I will be around to let you know when oil prices go back up because demand will catch up with production. I will help hand feed ya’ll while you eat your words about depletion being the reason for low prices. Lol
apneaman on Thu, 10th Dec 2015 5:50 pm
Boat, you’re still not using quotation marks like I showed you.
Boat you’ll have to show me the graphs to back your claim.
More predictions of happy days ahead from the boat. What about your rosey economic predictions that you were going on about? Even the MSM is shocked at the carnage and can no longer pretend. I guess it’s all based on how much boat is paying for a gallon of gas today vs 2009. I don’t believe that prices will go up soon or all that much. That’s because people do not have any fucking money and the global economy is hemorrhaging jobs and it’s still has a ways to go. Let’s take a look at a small sample from just the last few days shall we?
Suicide rate in Alberta climbs 30% in wake of mass oilpatch layoffs
‘It says something really about the horrible human impact of what’s happening in the economy,’ counsellor says
http://www.cbc.ca/news/canada/calgary/suicide-rate-alberta-increase-layoffs-1.3353662
Morgan Stanley begins layoffs in credit division: sources
http://www.businessinsider.com/r-morgan-stanley-begins-layoffs-in-credit-division-sources-2015-12
Anglo American’s massive restructuring involving 85,000 layoffs shows miners bracing for prolonged downturn
http://business.financialpost.com/news/mining/anglo-american-to-cut-85000-workers-sell-60-of-its-assets-and-suspend-dividend
Dow-DuPont Merger: Better Living Through Layoffs
This is not an America playing to win. It’s an America playing not to lose.
http://www.wsj.com/articles/dow-dupont-merger-the-shrinking-of-american-ambition-1449630924
Boater, just type “layoffs” into your search engine every day or so and start reading. Better make popcorn.
makati1 on Thu, 10th Dec 2015 7:44 pm
Some here are scared shitless that their lifestyle of choice will end soon. Others don’t fear the challenge. I’m in that latter group. Where are you?
As for Saudi Arabia, it is going to fail sooner-or-later, so let it fail now and get it over-with while there are still some resources left for our kids and theirs. Ditto for the West and especially the warmongering US.
And, yes, I DO understand total systems and global connectivity. THAT is why I am for their collapse. That paper you play with, called ‘money’, needs to die along with Wall Street and all of that other Capitalistic nonsense. Strip the elite of their wealth and power and we would have a safer world.
apneaman on Thu, 10th Dec 2015 8:22 pm
mak, I hate the elite and what society has become too and never would have believed I would live to see such corruption and stupidity in my life time in the west, but I do not believe most people have a “choice” or ever did. Seriously, how many of the 7.4 billion apes can move “back to the land”? No we are in a trap and we were born into it.
This man says it better than anyone else I have come across.
REBLOG: THE CARBON TRAP BY PAUL CHEFURKA
“Whether we realize it or not, everyone living on planet Earth today is caught in what I have come to call the “carbon trap”. The nature of the trap is simple, and can be described in one sentence:
Our continued existence depends on the very thing that is killing us – the combustion of our planet’s ancient stocks of carbon.
This unfortunate situation was not intentional, and is no one’s fault.
The trap was constructed well outside of our conscious view or understanding.
Its design came from our evolved desires for status, material comfort and security.
We recognized its seductive promise long before we knew enough science to discover its hidden hook.
It was built with the best of intentions by well-meaning scientists and engineers, whose knowledge of the consequences was both incomplete and clouded by their own evolved desire for a better life.
Most of us, even those who are aware of our predicament, distract ourselves by creating and admiring elaborate and luxurious appointments for our carbon-clad prison.
Many who can see the bars spend their time dreaming of ways to slip through them into the world outside – a world that they can see but never reach.
Those who are fully aware of the trap also understand that we now need it to survive; that leaving it (if that were even possible) would be as fatal as staying inside. We are victims of what complex systems scientists call “path dependence” – where we came from and how we got here puts strict limits on what is now possible for us to do.
One of the things we can’t do is simply open the door and leave. Even the fact that our carbon-barred prison is now on fire can’t change the cold equations. We are condemned to wait here until the walls burn down, when a few soot-blackened survivors may stumble out into the blasted and barren landscape left behind by our self-absorbed construction project.
This is why I believe that the one quality most needed in the world today is compassion.”
http://regeneracy.org/2015/08/reblog-the-carbon-trap-by-paul-chefurka/
makati1 on Thu, 10th Dec 2015 10:38 pm
Well, Ap, we will just pay with our lives as we have done throughout history. We are anyway. This time it will be our own stupidity, not sabre tooth tigers that kill us. Only the strongest and smartest will survive the coming bottleneck. That is how it should be. My only concern is that we may do a nuclear and not even give those a chance.
My observation is that of those 7+ billion, the worse pain will be felt in the countries that have the most to lose. Those are mainly the ones we call the West or 1st World. And that too is just as it has been living off of the 3rd World for centuries.
Who do you think will miss the petroleum age the most? The ones who have a house full of electrical gadgets and those 400+ energy ‘servants’ or the ones who live off the land and don’t even have running water or electric? BTW: that describes the neighbors to our farm. The ones without, that is.
I prefer to be around the ones ‘without’. The ones ‘with’ will go insane when the plug is pulled. Especially the armed and drugged up Americans. LOL
Davy on Fri, 11th Dec 2015 4:53 am
Characterizing those who live off the land and don’t have running water and electricity as those who will ride the coming collapse storm out is pure fantasy and nowhere true. Nowhere are people self-sufficient. Dirt farmers are reliant on the global system just as much as the rich world is. Overpopulation and overconsumption are not mutually exclusive they both are part of the rich world and 3rd world.
The so called dirt farmers are buying goods from the local economy. They buy and trade much less but there are so many more of them. It is only a very small drop in their production that can put them into the starvation range. What happens when there is a crop failure? Currently dirt farmers draw on the local economy to feed them if production is not adequate. Dirt farmers move to the cities if their farming fails. What happens when those cities are depopulating from collapse? What happens when there is no local oil based economy and too many people in need? Historically you get famine.
I agree the rich world will suffer the loss of complexity from the end of the oil age that is a no-brainer. Even areas with significant food production and lower populations are not safe because of the way food is produced today. Those who think the 3rd world will be fine are living a fantasy because the 3rd world has its own unique sustainability and resilience issues. The 3rd world especially Asia is in mass overshoot of carrying capacity at all levels. Subsistence farmers will be overwhelmed by destitute urbanites in search of food. Nowhere are subsistence farmers without dependence on the global economy either directly or indirectly. We are all in this together.
peakyeast on Fri, 11th Dec 2015 4:38 pm
@Boat: Makata actually explained it quite simply in a comment to another article.
Now its peak everything that burns even slightly. Not peak conventional oil – that is loong gone.
You might also ask yourself this question:
Do we extract oil from the bottom of the ocean and trying the arctic because we love the difficulty and the enormeous expenses?
And why do we bother with LOUSY quality resources if there is an extreme abundance of high quality oil?
And would these lousy rapidly depleting resources be able to compete with high quality in abundance?
The answers should be pretty obvious.
Boat on Fri, 11th Dec 2015 8:10 pm
peakyeast,
There has not been peak oil. There has not been peak nat gas. There has not been peak wind, solar, coal or food. You seem lost in the discussion.
peakyeast on Sat, 12th Dec 2015 7:37 am
@boat: Now I know why the other commenters writes those nasty things about you.
Thanks for informing me.
GregT on Sat, 12th Dec 2015 11:53 am
“Characterizing those who live off the land and don’t have running water and electricity as those who will ride the coming collapse storm out is pure fantasy and nowhere true. ”
I’m guessing that the main thing that would change for the Kogi, as an example, is that their environment would become healthier. Other than that, life would just continue on as usual. Living off of the land, without running water or electricity.
The more reliant a society is on BAU, the more it will be affected by the collapse of BAU. We, in North America, are totally reliant on BAU, and we have the farthest to fall when it collapses. No country is going to make it through the bottleneck without serious repercussions, but those people who are already used to living in what we would consider to be abject poverty, will be affected the least. They won’t miss what they don’t already have.
“Subsistence farmers will be overwhelmed by destitute urbanites in search of food.”
Only if they live close enough to the destitute urbanites. The farther removed people are from modern industrial society, the less they will be affected when it goes down. Of course there will be other serious issues to deal with, like water stress, and climate instability, but those are entirely different issues that will affect people throughout the entire planet. With, or without, a reliance on BAU.
Davy on Sat, 12th Dec 2015 12:40 pm
We have an integrated the global economy that all people are reliant on directly or indirectly. The Kogi’s life will not continue on normally in a collapse because their protections will be removed. They may get lucky but who knows where luck will shine. The more overpopulated a nation is the more reliant on the global economy they are to maintain their overshoot. Those who live in abject poverty now will have nowhere to fall to except starvation in many cases. This is not true of all but many now get by through grabbing the crumbs of the global system. Things don’t remain the same in collapse. If you are in abject poverty when times are good you starve when they get really bad in many cases. There is no moving very far away from population centers for many. Mass migrations will occur. Some may get lucky and miss these migrations but many won’t. North Americans are not “totally” reliant on BAU. A significant amount will have little to fall back on but many rural populations will get by albeit barely. We will have abject poverty and starvation in North America just like everywhere else but there is nothing special with this just because these people are North Americans. The numbers are difficult to generalize. This is a big world to generalize about. A few people everywhere will survive with a likely luck.