The newest country running scared in the pre-inauguration of Trump is Saudi Arabia. Apparently, Prince al-Waleed who invested heavily in Hillary and routinely derided and slandered Trump during the campaign, is now eating his first Crow. But it isn’t going over very well, so the Saudi government has decided to switch tactics and attempt to bully Trump.
Take a lesson from the EU’s Juncker – it won’t work, and will most likely incur the exact opposite reaction.
The Saudi’s are scared. Their precious oil has been decimated in the market place for two years and has now spiraled them into an austerity not seen in decades. Fiscal deficits, over-spending, elitist Royalty, have plagued Saudi Arabia. Without oil, Saudi Arabia has nothing. Oil and its derivatives account for 90% of their economy. China, Japan and the US account for about 34% of their export income. With Trump in office, with Trump opening dialogue with Russia, the US could easily switch its trade partnership from the Sauds to Russia, further depleting the Saudi influence.
And they aren’t to happy about that prospect. Their response would be to threaten Trump – well, not a good move. Perhaps it has worked with others, Trump – not so much.
“At his heart President-elect Trump will see the benefits and I think the oil industry will also be advising him accordingly that blocking trade in any product is not healthy,” Saudi Energy Minister and Aramco chairman Khalid Al-Falih.
OUCH! The oil industry will advise Trump? Somehow, I don’t think so.
Blackmail: The Sauds blackmailed Obama over the 9-11 documents. And now they will assert the same threat to Trump. Holding $750 billion in US assets, the Sauds will most likely use that threat to assure that Trump continues to act as their oil puppet.
Economically, selling assets isn’t much of a threat, it simply means a new owner. Removing debt is another thing altogether. According to the US Treasury Department, Saudi Arabia holds about $117 billion in US debt. By comparison, China and Japan each hold over $1.2 trillion in US debt. Obviously, their stake is far more critical to our economy.
Could the US absorb those dollars?
In 2014, Russia moved $100 billion out of US banks in response to US sanctions. While the selloff certainly didn’t help, it did add to the already historically low rate that matches rates in the 1940’s! In fact, US Treasuries have been tanking for the last 3 decades. A high was shit in 1982 when the rate reached over 14% and has since been on a fairly steady decline with rates now marked at 2.23%.
From a simplistic standpoint, T-Bills rise and fall in relation to economic expansion, inflation and demand. Economic expansion is negligible, inflation is near non-existent, and demand has waned significantly given our latest recessionary periods. That being said, if Saudi Arabia dumped their T-bills I imagine the agenda would be to have Russia and Asia and South America ante in.
End result would be a fairly painless transition. However, the Saudi aligned Middle East countries may follow suit and add to the fray. But how would such a divestiture effect them? Their economies would spiral out of control, a price war on oil would result in further drops in pricing as OPEC attempts to create a vengeance which would only further contract the economies throughout the Middle East.
I doubt that would be to their benefit. But then, they don’t seem to have the same logic of markets and economic diversification. So while the gamble could have short term negative effects on the US, the longer terms would see a major decline in Middle East influence and a reorganization of economies outside of oil.
While the ride may be a bit rocky – the ultimate end game could be most interesting. Without oil – ISIS would have no revenue source… without revenue the Sauds would deplete their stockpile of weapons that support ISIS, and the entire cabal could actually fade into disarray and disintegration.