| More on this story from yesterday. |
If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.
The contract price of US crude oil for delivery in December 2020 is currently $US62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.
OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost, and these may be bigger than originally supposed, not to mention the parallel possibilities in Argentina and Australia, or the possibility for "clean fracking" in China as plasma pulse technology cuts water needs.
Saudi Arabia is effectively beached. It relies on oil for 90 per cent of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.
There is the industry of religion. It's back to the Bronze Age with you
Optimist...
Citizens pay no tax on income, interest, or stock dividends. Subsidised petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 US cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent.
And around the world to export their lovely religion. Australian universities all have colonies of sunni theocrats. Could this be why halal certification is so important? setting up localised money streams as the international patronage money runs out?
The International Monetary Fund estimates that the budget deficit will reach 20 per cent of GDP this year, or roughly $US140 billion. The 'fiscal break-even price' is $US106.
what can I say? sucked in.
Far from retrenching, King Salman is spraying money around, giving away $US32 billion in a coronation bonus for all workers and pensioners.
when cousins marry and have 57 kids.... this is what you get
He has launched a costly war against the Houthis in Yemen
look over there - a shia (don't join IS please don't join IS)
and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.
now that is a worry
Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8 per cent of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace.
The reserves peaked at $US737 billion in August of 2014. They dropped to $US672 billion in May. At current prices they are falling by at least $US12 billion a month.
But the rich ones have bought shares in western companies and businesses like harrods, half of newsltd etc... they own us
Yet on the current course their reserves may be down to $US200 billion by the end of 2018. The markets will react long before this, seeing the writing on the wall. Capital flight will accelerate.
if wishes were fishes
The government can slash investment spending for a while - as it did in the mid-1980s - but in the end it must face draconian austerity. It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.
to infinity and beyond
Social spending is the glue that holds together a medieval
bronze age
Wahhabi regime at a time of fermenting unrest among the Shia minority of the Eastern Province, pin-prick terrorist attacks from ISIS, and blowback from the invasion of Yemen.
Diplomatic spending is what underpins the Saudi sphere of influence caught in a Middle East version of Europe's Thirty Year War, and still reeling from the after-shocks of a crushed democratic revolt.
Serious problem. Much as I like to see them poor so they cannot export idiocy, this leaves a massive problem. Well-armed theocratic idiots with a sense of entitlement and no marketable skills. The entire area will be a hell hole but we will get the refugees, and they will be all the more virulent in theocratic fascism as they look to their golden age. We must ban sharia. And in the Western world - Muslims are welcome, sharia is not