Saudi Arabia: Running Scared on Trump!

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.

2 thoughts on “Saudi Arabia: Running Scared on Trump!

  1. Too simplistic analysis. Forget oil imporst. Saudi is a good customer for US defence exports. Whatever USA paid for oil, much more it collected back from Saudis. Trump will leverage i more. Saudi will now end up paying out of its nose for USA umbrella or else they would be asked go to Russia and China that Saudi just cannot afford. Saudis are in a real fix. Selling US assets is an empty threat. Saudi will end selling it at heavy discount. America itself would buy it and resale at par! Any way, Saudis never known to be smart; just arrogant like mafia don with the excess wealth.

    Like

    • Sorry you feel this was simplistic. Problem: Sadi’s and US make ‘deals’ that include not just $$$ for trading weapons and oil, but objectives, coups, war against Shiites, etc… In addition, I stated that the threat of selling assets was empty…? I am not sure of your argument?
      I also do not understand your statement about the USA umbrella and they would be forced to go to Russia or China? That doesn’t make sense. Russia would sell defense weapons far cheaper than US… and Russia has it’s own oil so a trade would not even be in the picture. And China is already buying oil from Saudi Arabia. Under Trump, we could see our oil imports shift to Russia. we could see our defense spending completely realigned to internal infra-structure and internal protection. All things change. As do powers and importance.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s