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Page added on March 10, 2016
The Coming Collapse Of Saudi Arabia
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.
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.
30 Comments on "The Coming Collapse Of Saudi Arabia"
Poordogabone on Thu, 10th Mar 2016 8:21 pm
They should have posted a Saudi production chart to support what they are stating. Then of course if they had done so it would clearly show the KSA has not flooded the market, they have been pumping at ~10 MB/D steady since 2011 whereas the US has increase production by 5 MB/D in that same period.
Nuff said.
Bloomer on Thu, 10th Mar 2016 8:50 pm
Geopolitics is really making a mess of things for the oil producers. The real victims here are the Syria people. They have been used as pawns in a violent move by the West and Saudi Arabia to take out Assad and implant their puppet government.
brianr on Thu, 10th Mar 2016 9:39 pm
International Man excels in speculation, but this takes the cake. I have to laugh when someone tells me about a “secret” this or that. It’s ego massaging, and pure puffery. If bloggers and letter writers would just treat us as decent, honorable humans, we might think better of them.
Northwest Resident on Thu, 10th Mar 2016 9:53 pm
“If the Saudis don’t stop flooding the market…”
This lie is everywhere, repeated daily, bounced a hundred times off of every echo chamber wall hourly in the vast labyrinth of global media. It is just a flat out lie designed to fool as many of the people as possible. And it works because so many people are ignorant, unconcerned or just downright stupid.
Who benefits from this lie, and the companion lie — that SA is trying to drive American Shale producers out of business?
It probably helps the American oil producers avoid direct responsibility for their fraudulent suckering of investors. “Hey, we would be doing great and earning huge profits if it weren’t for those dastardly Saudi’s flooding the market with their oil.”
It probably helps the financial analysts and advisors who played key roles in siphoning investor bucks into the money pit that shale oil production always was and never anything but. They, too, can claim that their advice was sound and accurate, but who could have possibly imagined that the damn Saudi’s would “flood the market” with oil.
SA is NOT flooding the market with oil, and they could give a damn about the losing proposition that always was and still is American shale oil production.
The lies are so thick these days that it just makes one want to almost upchuck. Officially sponsored and condoned, professionally designed lies and propaganda. That’s what is holding confidence and therefore the global economy together. So sad.
Pennsyguy on Thu, 10th Mar 2016 10:08 pm
Yes, it is indeed sad Northwest, though the Saudis won’t shed any tears if U.S. producers go belly up. It looks like that oil consumption and econ. growth worldwide is not climbing in response to lower oil prices as in the past. I think that is often overlooked by the main-stream media with good reason.
Anonymous on Thu, 10th Mar 2016 10:55 pm
The article was doing well, until it brought up the Saudis are trying to kill the american fraking industry trope. The ‘sauds’ don’t care about them, nor does the uSgov. Just collateral damage in the war against Russia and Iran. To their way of thinking, if they somehow manage to ‘win’, the uS can simply print more us toilet paper to hand out to ‘investors’, and……
And voila!, the uS fraking industry will stage a miraculous comeback at the appropriate time.
Well, that is the plan anyhow. Nor are sauds exactly ‘flooding’ the market. Its more a case of refuse to match supply with demand. A rather different proposition. But I agree with the overall message. This oil war the uS arranged is not going near as well as the planners in Tel Aviv and washingdum expected.
GregT on Thu, 10th Mar 2016 11:09 pm
Exactly the way that I see it as well Anon. This is the geopolitical game outlined in the PNAC document. Putin has even come out publicly and said as much. The US oligarchs will not settle for a multipolar world. They want it all for themselves, at any cost. This is all about USD global hegemony. It has little to do with oil, and even less to do with the US of A, or her citizens. Total global domination, or the NWO if you like.
dooma on Fri, 11th Mar 2016 12:36 am
Record low interest rates around the world.
“Cheap energy in abundance to every economy.
And still economic growth remains stagnant-or going in reverse.
Sounds like we need a good war to kick start things again. Too bad it will be our last in known history.
GregT on Fri, 11th Mar 2016 12:51 am
“Cheap energy in abundance to every economy.”
Cheaper than a year ago for sure, but still not cheap when compared to historical average prices going back for the better part of a century.
Oil is still too expensive to allow the continuation of the growth that we have seen for the past few decades. It is not cheap.
http://static.cdn-seekingalpha.com/uploads/2014/2/11/22392-1392133973575186-David-White.png
dooma on Fri, 11th Mar 2016 1:53 am
GregT I meant to type “cheap” but as you know, once you post you cannot edit.
I am totally with you on this one mate.
marmico on Fri, 11th Mar 2016 4:02 am
It’s peak food. Dammit. The world is coming to an end because there is no cheap food left to power bellies but plenty of cheap energy left to power vehicles. ROTFLMFAO
U.S. household spending on food and energy from 1959-2015.
https://research.stlouisfed.org/fred2/graph/?g=3Le4
Plantagenet on Fri, 11th Mar 2016 4:16 am
It’s an oil glut. There is nothing secret or nefarious about it. It’s not John Kerry’s fault.
It’s just an Oil glut folks. That’s all it is
Cheers
americandream on Fri, 11th Mar 2016 4:39 am
The stupid is strong in many of these replies.
marmico on Fri, 11th Mar 2016 5:53 am
Did carry visit the wrong country on the secret mission in September, 2014? Iraq ramped production, not Saudi.
International Man is an idiot.
marmico on Fri, 11th Mar 2016 6:06 am
It’s peak health care. Dammit. The world is coming to an end because there is no cheap health care to overcome accident or illness but plenty of cheap energy left to power homes. ROTFLMFAO.
U.S. household spending on health care and energy from 1959-2015.
https://research.stlouisfed.org/fred2/graph/?g=3Lgj
Davy on Fri, 11th Mar 2016 6:19 am
The KSA has a big military and strong intelligence service. They have strong religious leaders behind the scenes. They are likely heading into instability and social disruption but how far that goes is still a big uncertainty. How the rest of the world reacts to social instability there is also a significant factor. The world economy is absolutely dependent on stable oil from this region so as you can imagine everyone from the Chinese to the west has a stake in this smallish area. A war with Iran would make a quick mess. There are too many possibilities and too many people with a vital interest in this part of the world for KSA to collapse like a Somalia or a Yemen. It is not out of the question but at least immediately likely not the outcome. Eventually we are all going to crash and burn and that will surely be when this area that is so unsustainable with be back to being what it once was a desert devoid of people except for a few wandering Bedouins.
rockman on Fri, 11th Mar 2016 6:32 am
As predictable as the sun coming up every morning: “This would hurt Russia’s and Iran’s economies. They both depend heavily on oil sales.” BTW neither of those countries (especially Russia) are as dependent on oil exports as the KSA. Not just for the sake of its economy but to avoid its own “Arab Spring”. And thus for months there’s the relentless drumbeat from the MSM: “The KSA is trying to cripple the shale players and recapture market share”. Of course the fact that percentagewise the KSA share of the global export market has only moved around 1% in either direction. And while they may have reduced exports to the US they increased exports by the same amount to other buyer.
So now that the “hurt the shale player” pitch has gotten old and mundane it’s time to swing 180 degrees and start selling the other side of the coin: “The KSA has foolish hurt themselves by keeping oil prices low and thus pushing itself towards collapse”. Boy, them Arabs are really dumb to not understand what the MSM does. LOL. But based upon their logic that the KSA actually controls the price of oil it should be easy for the KSA to fix the problem: simply cut production and see oil prices boom again, right? After all it was easy for the KSA to force oil to $30/bbl according to the MSM so it should be as equally easy to force it back to $90/bbl.
If only the KSA king had a subscription to the NY Times he would know how to fix his problem. LOL.
shortonoil on Fri, 11th Mar 2016 7:45 am
“It has arguably more control over the price of oil than any other country does.”
The Saudis have absolutely NO control over what the economy is capable of paying for oil, or how much it is capable of using. That is dictated by the physics of the petroleum depletion process. The molecular structure of the oil being used, and the energy dynamics of the petroleum production system:
http://www.thehillsgroup.org/depletion2_022.htm
Promoting them to the status of a turbine wearing, camel riding demigod is flirting with the occult. Next are we to learn that Allah may appear at any moment to strike down the impetuous infidels?
“All the Saudis have done is create an existential crisis for themselves.
All the author appears to be doing is taking a very high dive into a very shallow pool.
Anonymous on Fri, 11th Mar 2016 8:33 am
The preference of the amero-zionist empires is to wage oil wars and proxy wars these days. This is not to suggest they don’t like direct overt military violence, far from it. But the uS planners learn from the Germans, that overt, military conquest is capable of mobilizing intense and sustained resistance, and could even lead to disastrous defeats. Look at the spirited resistance the Vietnamese put against the uS invaders, despite huge casualties and damage inflicted by the uS. With the huge sums of money spent and raw uS fire-power, the uS was still defeated.
Oil wars and proxy wars, fought by uSraeli controlled assets, Saudi Arabia, the USlamic state aka Al-qaeda, aka ‘ISIS’ etc, may be slow, but they(mostly) work and are hard to defend against. The zionists that control the uS are more patient lot than the 3rd Reich were when it comes to conquest. The uS has spent most of the last 2 years trying with limited success, to mobilize Europe for military\economic war against Russia.
But the uS also knows that it could bite off more than it can chew-so proxy wars like Ukraine and Syria, and yes, oil price wars, are preferable to military strikes that, if handled badly, could, potentially, mobilize the entire globe, or large portions of it anyhow, against the uS empire and its puppets.
eugene on Fri, 11th Mar 2016 9:02 am
I like the line re we’re only buy 5% from the Saudis due to shale. The reality is we shifted purchases to Canada, Mexico, etc. American’s tooting our own horn is a distortion of reality as always. Makes me think of Ali dancing round shouting “I’m the greatest”. We may think and act like we’re the entire earth but we’re not. And that reality is slowly coming home.
Boat on Fri, 11th Mar 2016 9:37 am
marmico,
Love the charts and your sense of humor. To bad so many of the posters can’t make sense of what your saying.
Boat on Fri, 11th Mar 2016 9:49 am
GregT on Thu, 10th Mar 2016 11:09 pm
I see you have learned to refine and snort space dust.
GregT on Fri, 11th Mar 2016 10:10 am
Boat,
Of all the posters that frequent this site, you are without a doubt the one single person here that makes the least amount of sense. Your endorsement of marmi’s ludicrous ramblings does nothing to
help his credibility. Not that he had any to begin with. You repeatedly prove without a shadow of a reasonable doubt, on an almost daily basis, that you are incapable of logical, rational, reasoned thought.
Most people of your limited intellect would be embarrassed to expose their ignorance and stupidity in such a blatant and grandiose manner.
It is clear to anyone with two functioning brain cells left to rub together, that marmi is either a simple garden variety troll, or a paid shill. You, on the other hand, are obviously an oblivious, blathering, incompetent, fool.
GregT on Fri, 11th Mar 2016 10:17 am
And also,
“To bad so many of the posters can’t make sense of what your saying.”
Should be;
Too bad so many posters can’t make sense of what you’re saying.
Fucking moron.
joe on Fri, 11th Mar 2016 10:35 am
From all the reports i have read, the Saudis said that they would not CUT production in the face of increased US production and Iran entering the market, hows that a deliberate flood.
If anything Kerry would have begged the Saudis to make OPEC cut, then helped them against yemen.
It seems the Saudis strategy is exactly right. Its not their first rodeo, the house of Saud has been around in Arabia long before the US put them in charge of it. Tight oil is doing exactly what an in elastic substitute oil good should do, ie decrease supply. I wonder was it Kerrys plan to lose all those jobs and put Bernie sanders in with a fighting chance? Hmmm, but maybe a vast conspiricy is the better answer, at least then our leaders can seem to be super geniuses again, ill sleep better now, thanks
Norman Pagett on Fri, 11th Mar 2016 3:15 pm
Saudi Arabia is one of the most vulnerable nations in the world.
Their rulers can only race on ever faster, trying to placate their millions of unemployable young men, while maintaining a level of repression to satisfy a religious ideology dating from the 7th century.
If they try to change course they’re screwed on both counts.
Right now they have to use a third of their oil not just to keep themselves alive, but maintain the standard of living they now see as rightfully theirs (who wouldn’t want aircon in 50.C heat?)
That proportion is going to increase dramatically as the price of oil drops, so their output of it has to increase to sustain their new “normality”. But they are selling not just a finite resource, but their future. Saudi oil cannot last longer that 20 years—probably less than that, certainly not much more.
http://www.brookings.edu/blogs/markaz/posts/2015/07/02-saudi-energy-subsidies-hino
Reading the above article, one can only wonder where the Saudis will be importing their oil from?. Truth is of course that there won’t be any ‘other sources’ even if they have any money to buy it with. Long before then, as the vice of deprivation begins to tighten, their young men are going to realise that their unforgiving desert is going to reclaim its own. More importantly than oil, the Saudi aquifers are going to run dry, and in a nation of 30 million that can support only 1 million without oil revenue input, that means catastrophe far worse than oil depletion.
https://www.alaraby.co.uk/english/features/2015/5/1/saudi-arabia-faces-catastrophe-as-reservoirs-run-dry
Yet despite this reality, they go deeper into denial by building yet more cities, in places where cities should not exist, convinced that by some strange act of providence, those cities will continue to survive and flourish without enenergy or water sources:
http://www.bbc.co.uk/news/world-middle-east-35491061
These cities can never be functional, and faced with the employment choices of goat herding or camel trading the Saudis will go into panic/denial, and start fighting one another. The stage is already set for that, with Sunnis and Shias living uneasily in different areas of the country, each ready to blame the other for their misfortunes, brought on by selling their oil to the infidels in return for the weapons necessary to commit mass homicide.
Warfare is on their borders right now, and with the inevitable decline of oil power, the Saudis will have no resources with which to resist the incursions of other factions such as ISIL. With no worthwhile supplies of oil to keep them there, the US fleet will sail away from Bahrain and leave them to engage in their favourite pastime of mutual slaughter.
joe on Sat, 12th Mar 2016 1:38 am
This is a country that beheads people with swords every Friday. The word you want is SAVAGES. But i guess im not tolerant enough for modern western liberalism am i?
GregT on Sat, 12th Mar 2016 2:08 am
“is is a country that beheads people with swords every Friday. The word you want is SAVAGES. But i guess im not tolerant enough for modern western liberalism am i?”
You’re right joe, better to cluster bomb your chickens, rather than to behead them. Everyone knows this. Except of course, for those SAVAGES.
joe on Sat, 12th Mar 2016 3:48 am
They should know, the 1% is selling them enough cluster bombs to kill every chick in the Yemen.
makati1 on Sat, 12th Mar 2016 10:53 pm
joe doesn’t consider the tens of millions of innocents the Us has killed in the last 72 years as ‘collateral damage’ in their wars of plunder and empire building, to be important.
Only the way the Saudi’s deal with their law breakers hits the news. Beheading, hanging, electric chairs, firing squad, or a cops bullet in the back? What is the difference? The last four are favorites of the Empire. And beheading is ignored by that same Empire.