Fossil Fuel Divestment - Saudis Want Out

[Boatguy]

Finally starting to hear voices in the media calling bullshit on this Saudi energy transition and realizing there's no way out. The Saudis are pumping at record rates, Iran is coming online aggressively and if they both miraculously kiss and make up, the US will immediately come back on line and expand.

The Saudis pay their people for allegiance and stability. They are now perpetually in the red to the tune of $100-150B on those annual payments. Hillary better be ready for this mess because things are gonna get mighty ugly.

Yes, it's an unfortunate side effect of renewable energy. Much of the middle-east, already embroiled in turmoil, will see their economies shrink as the importance of oil fade's away. The shrinking economies will in turn lead to more turmoil. It's going to be ugly to watch. As Jon Stewart pointed out a few years ago, when we no longer care about the oil, we'll treat the middle east like we treat Africa.

 

[TheTalkingMule]

On the heels of the Saudi government issuing $17.5B in bonds last fall to meet budget shortfalls, Saudi Aramco will now raise $2B of a planned $10B via bond sales ahead of their planned 2018 IPO.

The most easily extracted oil in the world apparently needs a financial backstop. Pricing this IPO is going to be hilarious.

 

[RubberToe]

Much of the middle-east, already embroiled in turmoil, will see their economies shrink as the importance of oil fade's away. The shrinking economies will in turn lead to more turmoil. It's going to be ugly to watch...

Maybe when the kingdoms have a little less cash sloshing about, they will focus more on providing for the needs of their people and getting along better with their neighbors than using their money to buy modern weapons, and funneling these to their various proxies. When everyone there is somewhat poorer, they will no doubt still be killing each other, perhaps with somewhat less lethal tools. One would hope that would serve to moderate the outcome. Hope springs eternal.

I have trouble feeling much compassion for societies bent on mass murder perpetrated by religious fervor. My thought has always been that there will be no peace in the Middle East until there is only one person left alive there. Haven't seen much to change my mind the last several decades. Gonna be an interesting ride.

RT

 

[SageBrush]

Maybe when the kingdoms have a little less cash sloshing about, they will focus more on providing for the needs of their people and getting along better with their neighbors than using their money to buy modern weapons, and funneling these to their various proxies.

Who do you think is selling them weapons and encouraging the proxy wars ?

It isn't China, and it isn't Russia. Heck, it isn't even France.

 

[Boatguy]

Who do you think is selling them weapons and encouraging the proxy wars ?

It isn't China, and it isn't Russia. Heck, it isn't even France.

While I agree with your implied point, Russia gets major credit for Syria as they supported that war to be able to maintain a port on the Med.

 

[RubberToe]

Who do you think is selling them weapons and encouraging the proxy wars ?

It isn't China, and it isn't Russia. Heck, it isn't even France.

Not me. I can't solve all the world's problems. I suspect the U.S. can't either. YMMV.

RT

 

[SageBrush]

I suspect the U.S. can't either.

Solve them ?!

How about just not making them worse.
The current US strategy (one long established, by the way) is oil for arms.

It is moronic, and ultimately self-defeating.

 

[SageBrush]

While I agree with your implied point, Russia gets major credit for Syria as they supported that war to be able to maintain a port on the Med.

No lack of Russia meddling, but we were talking about Saudi Arabia

 

[TheTalkingMule]

Saudi Arabia Rating Cut by Fitch on Worsening Public Finances

Fitch reduced Saudi Arabia’s rating to A+, the fifth-highest investment grade, and changed the outlook to stable from negative, the agency said in a statement on Wednesday. The downgrade “reflects the continued deterioration of public and external balance sheets, the significantly wider than expected fiscal deficit in 2016 and continued doubts about the extent to which the government’s ambitious reform program can be implemented," Fitch said.

Saudi Arabia, where more than 60 percent of government revenue last year came from oil, reported a 15 percent rise in the federal government budget deficit to 17.3 percent of economic output in 2016, Fitch said. Net foreign assets of the central bank, or the Saudi Arabian Monetary Authority, fell by $49.5 billion, or 7.7 percent of gross domestic product, between June 2016 and January 2017.

 

[SageBrush]

Saudi Arabia Rating Cut by Fitch on Worsening Public Finances

Since this is the year that Saudi Arabia decided to cut the shale producer's legs off at the knees by flooding the world with cheap oil, I would not read too much into it. They can stabilize their foreign currency reserves if the price of oil increases by about $5 a barrel from last year -- which it already has, and more.

And to add some context to SA's debt:GDP ratio,
The US is somewhere in the range of 70 - 100%, while some countries in Europe are over 200%

 

[TheTalkingMule]

If the price of oil averages $45-65 for the next 2-3 years the Saudi royal family doesn't have enough resources to retain control. Very different than a semi-stable diversified democracy building up debt.

We could get to a $500B surplus in a snap tomorrow if we wanted, all the Saudi's can do is sell assets to hold off a natural continuation of the Arab Spring. And it certainly appears to be accelerating. It'll be interesting to see the total budget shortfall this year.

What happens when no one wants to pay $1T for Saudi Aramco?

 

[SageBrush]

Some more arithmetic from your SA post:
if 49.5B is 7.7% of the the SA GDP, then the GDP is 643B

60% is from oil, thus 386B
A rise in oil prices of about 20% from $48 to $58 a barrel increases their GDP by $74B

Last year, during the period SA was putting a knife into the shale industry, these SA debts accrued:

1. 50B reserves dwindled
2. Debt increased 2.3%, thus 15B

Total budget deficit last year: $65B

I read somewhere oil and currency reserves of SAr. They are quite impressive, and so long as the world is run on oil SAr's economic collapse is not on the horizon.

As for the US .... not so hot.
The main economic driver keeping the US 'afloat' is Chinese willingness to buy US debt. Watch what happens if the chump in the WH pisses China off.

 

[Boatguy]

As for the US .... not so hot.
The main economic driver keeping the US 'afloat' is Chinese willingness to buy US debt. Watch what happens if the chump in the WH pisses China off.

Not exactly. The national debt is roughly $17T, of which China owns about $1T as of January 2017. Japan owns $1.1T and foreign nationals in total own about $6T.

SA owns about $112B of U.S. debt. And for sheer amusement, you have the Cayman Islands, Brazil and Ireland with a total of about $815B which are most likely proxies for other foreign nationals seeking to hold assets outside their own country.

The U.S. dollar is essentially the only game on the globe. The Euro was expected to be an alternative reserve currency, but that has been weakening for a few years. The Yuan is the next candidate, but the lack of an independent judiciary and a clear "rule of law" takes the Yuan out of the running, including for many Chinese, a capital flight problem the Chinese government has been battling for a decade. Don't confuse Chinese government purchases of U.S. debt, with purchases by Chinese nationals seeking a "safe haven" outside of China.

 

[TheTalkingMule]

China owning more of our debt is the single most efficient defense mechanism we have. Wars start because of money, the more our interests are aligned the better.

 

[SageBrush]

China owning more of our debt is the single most efficient defense mechanism we have. Wars start because of money, the more our interests are aligned the better.

That is ONE facet, to be sure. Owners somewhat tend their slaves for similar reasons but given a choice, people usually choose independence over 'alignment'.

 

[TheTalkingMule]

given a choice, people usually choose independence over 'alignment'.

Alignment is enough while in this transitional phase

More on the pending IPO train-wreck.....

Kingdom come: New York may be a long shot for Aramco IPO

The New York Stock Exchange has emerged as the front-runner for the global IPO of Saudi Aramco — widely predicted to be the biggest initial public offering in history. But political, regulatory and legal challenges may discourage Riyadh from pursuing a U.S. listing, despite the commercial merits.

An international stock market listing means opening up its books to regulators — and ultimately to greater investor scrutiny. That would be a first for any Saudi state-owned behemoth, none of which are accustomed to sharing information about financial accounts and oil reserves. Some doubt Riyadh would be prepared to meet such transparency demands, despite plans to float only 5 percent of Aramco.

"How can one establish a valuation for a company that has thus far kept its reserve data a state secret? Tearing a 5 percent piece of the company and throwing it into the market while the other 95 percent is a black box will not fly with prudent investors."

Additionally, the continued political and diplomatic fallout from the Sept. 11, 2001 attacks stands to complicate the picture further.

Saudi Arabia has denied longstanding suspicions that elements linked to Riyadh backed the hijackers who attacked the U.S. in 2001. Fifteen of the 19 hijackers were Saudi nationals.

Edit: I would imagine neroden can draw some parallels between the Aramco books and the old SCTY quarterly filings

 

[TheTalkingMule]

Desperation is setting in. By next spring it may be tough to control the masses let alone manage a rational IPO.

Saudi reversal in benefits makes OPEC deal—and higher oil prices—more important

 

[Boatguy]

Desperation is setting in. By next spring it may be tough to control the masses let alone manage a rational IPO.

Saudi reversal in benefits makes OPEC deal—and higher oil prices—more important

The link fails to open.

 

[Ampster]

Try this: I am not sure this is the correct link. It is one that came from Googling "Saudi Reversal"

As Saudi Arabia gives back perks to its people, it needs a higher oil price

 

[Brando]

Sorry to go off topic a bit here, but this is something I think about a lot. One of the downsides to personalized news driven by recommender systems is that our biases are constantly confirmed and become ever stronger. This results in more polarization, as far as I can tell, because we're only hearing what's easy to hear. Not only that, but the content providers are more incentivized to deliver news articles that will be directed to their constituents (click counts confirming this). It's not the best recipe for opening minds.

Something I've learned to do when reading all news is to figure out their narrative first, and then read the article in that context. The more quickly you become aware of the narrative they're trying to tell, the easier it is to detect the BS. The most important time to do this is when you're reading something that is confirming your existing biases, as you're much less likely to have your skeptical radar up at that time.

I'm toying with an idea to create a recommender system for news which takes your preferences, and selectively gives you contrarian articles that aren't off-putting, but give you a different viewpoint. The problem is finding content that presents the evidence/news in a less narrative-based fashion.

/end off topic rant

You seem to have a contemplative mind. So I thought to post my thought to you.

If US owns some Saudi stock, will they be less likely to bomb/invade?
Fearful of hurting stock price?