Pyrrhic Victory And The Definition Of Winning -- February 17, 2017

Over at Twitter, John Kemp is asking: Is Saudi Arabia winning the war against shale?

As Bill Clinton would say, it depends on the definition of "winning."

Bloomberg is reporting: Saudi Arabia's credit rating outlook cut to negative at S&P.

Saudi Arabia, the world’s largest oil exporter, had the outlook on its credit grade cut to negative by Standard & Poor’s while other struggling energy-producing nations had their ratings lowered.

The Saudi kingdom could lose its AA- credit ranking, the fourth-highest debt grade, in two years if its “liquid assets” decline or its fiscal position weaken, S&P said in a statement Monday. The rating company also cut the grades of Oman, Bahrain, Kazakhstan and Venezuela by one step, citing lower oil prices.

A 50 percent drop in oil since June is eroding government revenues of energy exporters and dimming their growth prospects. S&P said oil will average $70 a barrel by 2018, down from a forecast of $85 in December, when it lowered Saudi Arabia’s outlook to stable from positive.

“Given its high dependence on oil, Saudi Arabia’s currently very strong fiscal position could weaken owing to the oil price decline,” analysts led by Trevor Cullinan at S&P wrote.

Saudi Arabia, which relies on oil and gas for about 90 percent of government revenue and for 85 percent of its exports, may face “sustained” budget deficits over the next few years as lower crude prices persist, the rating company said.

If one goes to the most recent edition of Encyclopedia Brittanica to look up "Pyrrhic Victory" there is a graphic of the price of oil over the past 24 months superimposed over a map of Saudi Arabia. 

Credit ratings can be found here. The second to the lowest is Venezuela at CCC, extremely speculative. At the bottom of the list is Puerto Rico at CCC-, "in default with little chance of recovery." Argentina has the unusual designation of SD/RD: it has defaulted on some obligations, but is paying on others.

With regard to Saudi other phrases come to mind: too big to fail; saving face; trillion-dollar mistake.