Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system.
Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008.
Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest.
Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets.
Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one “black swan event” and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (£6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit.
rockman on Sun, 22nd May 2016 5:40 pm
And yet there will still be those who’ll argue the KSA is intentionally keeping oil prices low to hurt the US shale players. If so the KSA appears willing to suffer their resultant financial pain. The assertion of the KSA causing the price collapse becomes increasingly foolish.
makati1 on Sun, 22nd May 2016 6:32 pm
“Saudi financial crisis ‘could leave oil at $25’ as contractors face being paid in IOUs”
What’s wrong with that? The US has been paying everybody with IOUs for years. They call them “dollars”. Soon everybody is going to find that they are worthless. LOL
Rick Bronson on Sun, 22nd May 2016 6:34 pm
If Saudis cannot raise enough cash at lower interest, then they will just sell their US investments which yields them lower interest.
Besides their population is growing fast and they have to find some source to feed those people.
And what %age of their budget is allocated to finance Al Qaeda and Islamic State. Any #.
shortonoil on Sun, 22nd May 2016 7:05 pm
“If Saudis cannot raise enough cash at lower interest, then they will just sell their US investments which yields them lower interest.”
That would be fine if they had any?
05/18/16 PO News
Bring on the zombie killers to clear the way for the energy revival”
“What this means is simple: as a result of the budget imbalance driven by low oil prices, “largely a Saudi doing”, the kingdom is forced to give workers an implicit pay cut.”
http://www.zerohedge.com/news/2016-05-18/saudi-arabia-admits-full-blown-liquidity-crisis-will-pay-government-contractors-ious
Although we shouldn’t put too much credence in the intellect of someone who would make a statement like the one above, as we mentioned yesterday the Saudis have a cash flow problem. The $750 billion in US Treasuries that they supposedly held is actually $117 billion. Now they are talking about paying their contractors with IOUs; sounds like the economic situation of California.”
Davy on Sun, 22nd May 2016 8:03 pm
Forget the IOU’s from the KSA or the USA check out what is happening in China. China is the real thAng!
“China Has Quietly Bailed Out Over $220 Billion In Bad Debt In The Past 2 Months”
http://www.zerohedge.com/news/2016-05-22/china-has-quietly-bailed-out-over-220-billion-bad-debt-past-2-months
“This proposal entails nothing short of a nationalization on a grand scale……In effect, the PBOC is proposing the biggest debt-for-equity swap ever seen……So why is China doing this? By equitizing trillions in bad loans, it frees up the corporate balance sheets to layer on fresh trillions in bad debt, the same debt that pushed these zombie companies into insolvency to begin with”
“We concluded as follows: “While this is surely “good” news for the very short run, as it allows the worst of the worst in China’s insolvent corporate sector to issue even more debt, in the longer run it means that China’s total debt to GDP, which is already at 350% is about to surpass Japan’s gargantuan 400% within a year if not sooner.”
“It also means much more deflation, because Chinese corporations which were adding to China’s massive excess capacity bubble and which would have otherwise gone out of business, will remains in business as they no longer have to worry about funding interest (after being effectively nationalized by the state), and instead will pump output at historical levels.”
“The bad news is that, as we first reported last November citing Fitch calculations, China’s bad debt “neutron bomb” is roughly 20% of total bank loans….Assuming a 60% loss ratio, the IMF puts potential bank losses at 7% of GDP, a level which it still considers as “manageable” while noting that for this to remain the case “prompt action” to address excess capacity and the like needs to occur.”
Truth Has A Liberal Bias on Sun, 22nd May 2016 10:45 pm
Rock mans comment is smart. As far as the rest It’s like I yelled ‘retard’ down a canyon and listened to the echo.
GregT on Mon, 23rd May 2016 12:42 am
That would be ‘Rockman’s’ comment THALB. The fact that you can’t even respond at such a rudimentary level, proves beyond a responsible doubt that it is you, who is the fucking retard. Retard.
GregT on Mon, 23rd May 2016 1:25 am
And furthermore THALB, for the big man with 267 acres of land in the mountains, who is making such huge profits (in your mind), why do you feel the need to hang out here in the first place? I’m sure that someone of your stature has much better things to do with his life. No?
PracticalMaina on Mon, 23rd May 2016 8:11 am
Dont worry, GE is spending 1.4 billion they probably got from our taxes.
joe on Mon, 23rd May 2016 9:40 am
The Grand sons of ibnSaud may well have to square off to decide the next king. The religio-facist state of Arabia will have its systemic monarchical weakness reveled one way or the other.
At least in the old Ottoman Caliphate the losing sons were garroted to death to prevent exactly what seems to be about to happen when Saudi gets low on money and big on heirs.
shortonoil on Mon, 23rd May 2016 12:55 pm
“And furthermore THALB, for the big man with 267 acres of land in the mountains, who is making such huge profits (in your mind), why do you feel the need to hang out here in the first place?”
I’ve got 152 acres in W.VA. My grandfather bought most of it in the 20’s for a $1 an acre.
Guess what — it is still worth about a dollar an acre? Having that mountain property is such a relief; I’m assured a life time supply of rattlesnakes and tics.
peakyeast on Mon, 23rd May 2016 4:47 pm
It’s funny that people think that things will stabilize in an rapidly increasingly unstable world.
shortonoil on Mon, 23rd May 2016 7:47 pm
“It’s funny that people think that things will stabilize in an rapidly increasingly unstable world.”
Form follows function; humans look almost exactly like they did one million years ago. Except our brains have gotten smaller! Some things never change.