The Perfect Storm: China's Economy Slowing; Iran Sanctions Lifted; Price Of Oil Plummets; And Then, That Pesky Little Yemen War -- August 14, 206

Updates

August 15, 2016: the original post linked a very recent Breitbart article. The [London] Telegraph also had a similar analysis of Saudi Arabia back in February, 2016. Saudi Arabia is truly in dire straits. This was the headline: Saudi Arabia may go broke before before the US oil industry buckles.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.

Saudi cannot survive on $60 oil. Look how far out we see $60 oil: out to 2020 -- that's four years from now (an important timeframe -- see original post). Historically, Saudi has budgeted for $100 oil, and can probably survive on $80 oil. But $60 oil? Nope. 

Original Post

The perfect storm.

Wow, this is interesting. What do you know? Posted today over at Breitbart.

With China’s economic crash driving U.S. oil prices down to $42 a barrel, Saudi Arabia is the oil-exporting nation suffering the worst economic decline.

The 15,000 members of the six branches of the Saudi royal family have been buying national support with massive social welfare spending. But with the oil price plunging by 60 percent, causing a massive budget deficit, the kingdom’s foreign exchange reserves could be wiped out in four years. [That's how long it takes some kids to finish high school.]

Most analysts have focused on Russia as suffering the worst impacts of the oil price crash. The value of Russia’s oil & gas production is approximately $350 billion per year; it accounts for 20 percent of Russia’s GDP, and equals two thirds of all exports. But even at current prices, Russia will still achieve a trade surplus of about three percent of GDP. As an oil exporter, Russia’s is uniquely self-sufficient and a military exporter.

Saudi Arabia, on the other hand:

Saudi Arabia’s oil and gas sector makes up 45 percent of GDP, funds about 80 of the government’s budget, and accounts for 90 percent of exports. Saudi Arabia’s 2014 budget spending was $294.3 billion, with a $14.4 billion deficit. The 2015 Saudi budget was cut down to $229.3 billion in spending, with an expected $38.6 billion deficit.
But in June with the average price of oil estimated to be $60 a barrel for the year, the IMF estimated that Saudi Arabia’s $745 billion GDP would fall to $649 billion and the nation would post a budget deficit of 20 percent of GDP, or $130 billion.

With international oil prices at $49 a barrel, the Saudi deficit will jump to about $163 billion and Saudi GDP will plunge by another $80 billion, to $570 billion.

And that pesky war:

The IMF also did not make any mention of the added cost of Saudi Arabia’s air campaign against the Islamic State in Syria, and its war and invasion of Yemen.

$5000-traffic fines won't be the answer:

Unlike the Russians’ legendary ability to hunker down and rely on their own self sufficiency in food and production, Saudi Arabia imports 70 percent of its food and does not produce military hardware, cars, refrigerators, civil airplanes, ships, or most manufactured consumer and industrial goods. Saudi Arabia’s only real domestic industry is petrochemicals. [They can't even do new solar projects.]

The Saudi Arabian kingdom is in no position to implement severe austerity measures, like Russia. The vast majority of Saudis enjoy their standard of living due to government handouts. [It's one big rez.]

Saudi citizens tend to lack employable skills and are culturally not inclined to work. Of the 30 million residents, only 5.5 million work and 3 million work directly for the government. The small private sector tends to employ foreigners.

Much more at the link.

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Not Looking Good For That Russian Female Swimmer: Tea Leaves

From Time:

Track’s global governing body banned all but one Russian track athlete from Rio after a report commissioned by the World Anti-Doping Agency found rampant performance-enhancing drug use on the team. And on Saturday that lone [Russian] holdout, long jumper Darya Klishina, was also suspended.

And now we're waiting the outcome of the appeal by the Russian swimmer who took silver in the 100-meter breaststroke.

Russian swimmer Yulia Efimova had served a 16-month ban for doping. After Efimova competed in the 100-m breaststroke semifinals, she waved a “No. 1” finger in the air.

Efimova was suspended but "on appeal" was allowed to participate in the Rio Olympics. Her case is still being reviewed. My hunch is that if she loses the appeal, the finger wagging will be what "did her in."

If the IOC doesn't do the right thing ... well, it won't be the first time.