The Coming Saudi Crack-up? By Daniel Lazare

[Proserpina]

http://www.informationclearinghouse.info/article43798.htm

President Obama, like generations of Western leaders, has coddled the oil-rich Saudi monarchy by tolerating its reactionary politics, its financing of radical Islam and its military support for Sunni jihadist terrorism. But the spoiled Saudi leaders may finally be going too far, as Daniel Lazare describes.

Is the Saudi monarchy coming apart at the seams? Scholars and journalists have long predicted the kingdom’s demise, but this time the forecasts may finally prove correct. The reason is an unprecedented avalanche of problems pouring down on Saudi Arabia since 79-year-old Salman bin Abdulaziz Al Saud assumed the throne last January. A hardliner in contrast to his vaguely reformist predecessor Abdullah, Salman lost no time in letting the world know that a new sheriff was in town. He upped the number of public executions, which, at 151, are now running at nearly double last year’s rate.

After meeting with Turkish President Recep Tayyip Erdogan, he promised to intensify efforts to topple Syrian President Bashar al-Assad by increasing aid to Al Nusra, Al Qaeda’s official Syrian affiliate. A few weeks later, he assembled a coalition of nine Sunni Arab states to launch nightly bombing raids on Yemen, quickly reducing one of the poorest countries in the Middle East to ruin...People certainly took notice. But if Salman thought such actions would win him respect, he was wrong. Instead, the result has been a steady drum beat of negative publicity as the world awakes to the fact that, with its public beheadings and barbaric treatment of women, the Islamic state headed by the House of Saud is little different from the Islamic State headed by Abu Bakr al-Baghdadi in northern Syria and Iraq.

Topping the kingdom’s list of woes is the economy. With its stubbornly high unemployment rate and growing wealth gap between the rich and poor, Saudi Arabia has long been the sick man of the Persian Gulf. Even though planners have been talking about economic diversification since the 1970s, the kingdom was actually more dependent on oil as of 2013 than 40 years earlier.

“Saudization” of the workforce is another mantra, yet the labor market remains polarized between a private sector dominated by foreign guest workers, mainly from South Asia, and a public sector filled with Saudi “sofa men” who spend their days lounging about in government offices. Riyadh wishes that young people would take jobs in hotels, oil refineries and the like, but most prefer to wait for a high-paid government sinecure to open up – which is one reason why the jobless rate among young people is as high as 29 percent.

Oil Price Crash

Given this combination of oil dependence and joblessness, a two-thirds drop in the price of crude since mid-2014 couldn’t be more painful. But what makes it even more frightening is the growing realization that, with softening demand due to the global slowdown and growing over-supply due to the fracking revolution, low prices will be a fact of life for years to come. This prospect does not bode well for a country dependent on oil for 91 percent of its foreign revenue, one that is currently burning through its foreign reserves at the rate of $10 billion a month...

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[leveymg]

1. In 1997 crude fell to $10/bbl. That didn't recover until after 9/11

The rise in risk premiums and the invasion of Iraq took surplus supply off the market. That seems to be the preferred solution.

[Proserpina]

2. yeah, war is the answer to everything for some

OPEC also tightened up supplies, though, every other time prices fell. This time, they sought to drown their competition by pumping out more than the market can use; this was supposed to drive the frackers out of business.

So far, it isn't working. But the economics of fracking is becoming increasingly perilous. So is the whole ISIS situation, the Yemen war, and more.

I think perhaps the new King Saud is trying to make up for his lost time due to the lengthy dying of his predecessor, and the short window of his remaining lifespan, and as a result, he will impoverish the entire family!

[leveymg]

3. Saudi foreign reserves were estimated to be $900B

At $10B/Mo they could hold out for years until the US can be drawn into destroying yet another major rival producing country. We all know who that is.

[Proserpina]

4. But they are eating their capital, the seed corn

can't support generations of polygamous families, in the style they have become accustomed to, by depleting wealth.

I'm going back to bed. Nice chatting with you!

[CJCRANE]

5. The elites are playing "Last Man Standing"

using the sanctions against Russia and the low oil prices.

[Chan790]

8. If it were static, they could last 7.5 years, but...

it's probably not static now and definitely will not be in the future as energy diversification and new oil-sources continue to destroy demand.

The rate they will have to spend foreign reserve currencies to keep their economy afloat is going to accelerate. They probably have closer to 3-5 years before they meet the proverbial meat-grinder and less than 1 before they start to feel real pain.

[leveymg]

9. They get the US President they want (either way), in less than a year. They're counting on it.

It's the outcome they've invested in: more war, more oil supply disruption, higher crude prices over the long run.

[Chan790]

10. War isn't going to dig them out of this hole.

Disruption isn't going to dig them out of this hole.

Crude prices are in a terminal slide...they're not coming back up unless they "dead-cat" bounce or rally for a few years before falling off the cliff.

We're too close to actual energy independence where we just don't need anybody's oil or energy-generation but our own...and maybe Canada's. The day we no longer need a drop of ME oil is too close to save the Saudis. China's not that far off cutting the spigot themselves.

[leveymg]

12. No but it will keep them in it for another decade. Just like the last war of choice we started

on their behalf.

Besides, the Saudis and Gulf States are so wealthy, they can comfortably remove themselves and relocate and rule things from anywhere on the planet they fancy. Their exile will be envy of the world.

[Chan790]

7. Probably not in this case really.

The US, as the largest consumer, is on the verge of energy independence...we finally produce more than we use and are beginning to consider becoming a net exporter. This is being driven both by energy diversification (more energy being generated by other sources means less oil being burned to generate electricity; more efficient cars and electric cars means lower gasoline demand; a now-brimming strategic reserve means no real way left to shore up falling prices as an economic or stability hedge) and by increase in production in the US as well as neighboring Mexico and Canada. China is not far behind.

That reflects a reality that the demand side of the market is about to drop-out within the next 5-10 years...there isn't enough growth in demand elsewhere in the world to offset the US and China becoming non-buyers...and when that happens, there will be no saving the House of Saud.

[nitpicker]

6. I remember that time

As low as $0.68 at the pump.

[mac2766]

11. I remember...

At 14, I used to fill the tank of my 125cc Honda Motorcycle for .25. Those were the days!