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Saudi Arabia Having to Borrow Billions – Could Be Bankrupt by End of the Decade

Saudi Arabia Having to Borrow Billions – Could Be Bankrupt by End of the Decade thumbnail

Over the past year, Saudi Arabia – once among the richest nations on the planet – has wound up having to sell some $4 billion in bonds. It has been necessary in order to maintain levels of spending on public works and continue financing the war against Yemen. The Saudi government has also had to draw on its reserves of foreign currency. Falad al-Mubarak, who heads the Saudi Arabian Monetary Agency (the nation’s equivalent of the U.S. Federal Reserve), predicts “an increase in borrowing” in the face of a projected $130 billion deficit.

The primary cause is the drastic decline in the price of crude oil. Since hitting a peak of around $125 in February 2011, the price of a barrel of oil is currently under $50. It’s not going to get better anytime soon. Oil company executives predict it may be years before petroleum prices rebound. In order for the Saudi government to balance its budget, oil would need to be at least $105 a barrel. According to Dr. John Sfakianakis, an economist who oversees [Persian] Gulf Cooperation Council funds for the U.K.-based Ashmore Group, “reality is hitting home, and necessity is also hitting home.” Given the current state of the crude oil market, Dr. Sfakianakis predicts that Saudi Arabia will be broke by the end of the decade.

Prior to the 1930s, Saudi Arabia was among the poorest nations in the world. The people existed on subsistence farming and herding; most were nomads, wandering from one place to another in search of water and food sources. This all changed with the outbreak of the Second World War. Officially, the Saudis were neutral. However, because of its oil resources, President Franklin D. Roosevelt made the defense of Saudi Arabia a priority. The U.S. started supplying weapons under the Lend-Lease Act in 1943. Eventually, King Abdul Aziz declared war on Germany in early 1945, though by that point, Germany was all but defeated. The U.S. remained the dominant influence in the region for decades.

In 1960, Saudi Arabia joined with Iran, Iraq, Kuwait and Venezuela to form the Organization of the Petroleum Exporting Countries (OPEC). By 1973, the Saudis – in coalition with other OPEC members – began flexing its economic muscle by quadrupling the price of oil. During the following decades, Saudi Arabia enjoyed phenomenal economic growth. Budget surpluses allowed the government to spend lavishly on its military, public projects and aid to other Muslim countries.

That is all coming to an end. Between increasing oil supplies and falling demand, Saudi Arabia is looking at a return to a subsistence economy in the coming decades. Attempts have been made over the years to diversify the Saudi economy, but these have largely been ineffective. The situation is exacerbated by rapid population growth and a lack of relevant job skills among Saudi university graduates.

Saudi Arabia’s impending economic plight serves as a warning of the dangers of over-reliance on a single industry, as well as failure to keep up with the times. The falling demand for oil is driven by several factors. Among them is the realization that petroleum is a finite resource and its utilization is having serious environmental impacts. It is something that Shah Reza Pahlavi of Iran understood over fifty years ago when he decided to embark on a nuclear energy program.

If there is any silver lining for Saudi Arabia, it lies in the country’s solar power potential. Plans are in the works to make Saudi Arabia a “global leader in solar and wind energy,” according to Ali al-Naimi, current Saudi Oil Minister. However, progress is slow – and the impending financial crisis is closer than the Saudis realize.

 – Ring of Fire



35 Comments on "Saudi Arabia Having to Borrow Billions – Could Be Bankrupt by End of the Decade"

  1. SugarSeam on Fri, 24th Jul 2015 5:35 pm 

    cogent story… poor Saudi… market share or cut production to boost global price? what to do? what to do?

    I wonder how much sanction they’ll face when those 28 pages are finally declassified.

  2. SugarSeam on Fri, 24th Jul 2015 5:36 pm 

    28pages.org

  3. shortonoil on Fri, 24th Jul 2015 7:05 pm 

    http://www.thehillsgroup.org/depletion2_022.htm

  4. dave thompson on Fri, 24th Jul 2015 7:20 pm 

    Sounds utterly goofy that this world leading oil producer would need to borrow billions.

  5. BC on Fri, 24th Jul 2015 9:54 pm 

    http://tinyurl.com/q6dsw7h

    Look at the population growth of SA and neighbors: disaster.

  6. Makati1 on Fri, 24th Jul 2015 10:08 pm 

    “My grandfather rode a camel,
    my father rode a camel,
    I drive a Mercedes,
    my son drives a Land Rover,
    his son will drive a Land Rover,
    but his son will ride a camel.”
    Sheikh Rashid bin Saeed Al Maktoum

  7. shortonoil on Sat, 25th Jul 2015 7:24 am 

    “Sounds utterly goofy that this world leading oil producer would need to borrow billions.”

    The oil age ends when producers can no longer make money producing oil. That is the point where the energy needed to produce it (extract, process, and distribute) becomes equal to the energy content of the oil. Economics does not give us a reliable means to project when that will occur; thermodynamics does. In this case, however, they are not too far off the mark.

    http://www.thehillsgroup.org/

  8. pat on Sat, 25th Jul 2015 7:47 am 

    the limits of everything are showing the effects, the age of oil is coming to end

  9. apneaman on Sat, 25th Jul 2015 8:15 am 

    Oil prices are down, gasoline prices are not. What gives?
    It’s a good summer to be selling gasoline, not a great one to be buying it

    http://www.cbc.ca/news/business/oil-prices-are-down-gasoline-prices-are-not-what-gives-1.3163008

  10. apneaman on Sat, 25th Jul 2015 8:18 am 

    The year that broke oil: What’s the damage and where does Canada go from here?

    http://business.financialpost.com/financial-post-magazine/the-year-that-broke-oil-whats-the-damage-and-where-does-canada-go-from-here

  11. BobInget on Sat, 25th Jul 2015 9:30 am 

    July 23 (Reuters) – Hercules Offshore Inc, stung by slumping demand for drilling services in older Gulf of Mexico oilfields, said on Thursday it plans to file for creditor protection in about three weeks and emerge several months later with a restructured balance sheet.

    The small company, which rents out jackup rigs to drill shallow water wells that tend to yield less than giant deepwater ones, has been struggling for months because of an oversupplied rig market and slumping oil prices that have forced producers to slash spending.

    In November it cut 15 percent of its workforce, or 324 jobs, and last month started talks with creditors for an orderly bankruptcy filing.

    Hercules said on Thursday it has support for the filing from holders of over two thirds of its collective outstanding debt. It added that the prepackaged process will reduce the time it spends in bankruptcy protection, which it hopes to leave early in the fourth quarter.

    The company’s balance sheet lists $266 million in current assets and $1.35 billion in current liabilities.

    Hercules shares were down 5.8 percent at 15.35 cents on Thursday afternoon. It posted a second-quarter net loss of $88.3 million, compared with net income of $6.6 million in the same period a year ago.

    (Reporting by Sneha Banerjee and Narottam Medhora in Bengaluru; Editing by Savio D’Souza, Terry Wade and Andrew Hay)

    – See more at: http://www.rigzone.com/news/oil_gas/a/139780/Offshore_Driller_Hercules_Says_Weeks_From_Bankruptcy#sthash.Fj7RZSH0.dpuf

  12. BobInget on Sat, 25th Jul 2015 9:44 am 

    By some miracle, Nog a Single Oil installation
    has been hit.

    Turkey is bombing ISIS but ISIS says they are not being bombed, Kurds are saying Turkey is bombing them.

    So now Turkey is bombing Syria and the Kurds, US is bombing Syria and Iraq, Syria is bombing Syria, Iran and Hezbollah are fighting in Syria and Iraq, Iraq is bombing Iraq, Libya is bombing Libya and Saudi is bombing Yemen.

    Welcome to the tranquil middle-east, home of a major portion of global oil supply.

  13. idontknowmyself on Sat, 25th Jul 2015 9:45 am 

    As the whole system (global trade, commodity extraction, manufacturing, customer behaviour, ..) is about the move into a new set of operating conditions because of the law of thermodynamic, price system ( price of things, currency fluctuation, ….) will become more and more erratic because it is a man made concept that has not yet been proven scientifically to accurate.

    Notice that in the CBC article, there is no mention of the type of oil being refined ( heavy oil, light sweet crude). It is all a monetary analysis. Monetary analysis is quickly becoming useless to explain what is happening.

  14. BobInget on Sat, 25th Jul 2015 10:22 am 

    Shortonoil missis the point, entirely.

    Saudi Arabia is engaged in a terribly expensive genocidal bombing program. KSA’s two main partners, USA and Israel are in no financial position to offer more then military aid.

    KSA and its ‘collation’ partners are burning through at minimum, thirty million dollars a day in aircraft maintenance daily.

    So called oil analysts ignore classified military oil consumption. One million barrels
    p/d for jet fuel is conservative judging by the number of sorties being flown by almost forty nations involved in this (lower case) world war.

    Shortonoil would be correct if only military
    expenditures were stood by oil companies
    instead of national debt.

    Saudi Arabia et all OPEC members are almost entirely budgetary dependent on government managed oil exports.

    Saudi Arabia broke the back of the OPEC
    cartel when it ‘went to the mattresses’ with Iran, Russia and US shale. KSA doubled down when it destroyed Yemen.
    Leave it to historians to argue which was the decisive factor in KSA’s downfall.

    If you have a single great source of income…
    Stone throwing glass home owners take note.

  15. idontknowmyself on Sat, 25th Jul 2015 2:44 pm 

    This is a perfect example of the price system becoming complete erratic.

    Venezuela’s Hyperinflation Crack-Up Boom On Its Way To Outer Space

    http://www.zerohedge.com/news/2015-07-25/venezuelas-hyperinflation-crack-boom-its-way-outer-space

    However, amid capital controls and a collapse of Venezuela’s currency on the “black” market, the country’s stock market is soaring:

    So you have chronic shortage with a soaring stock market. That sound about right according to economics laws.

  16. Ray on Sat, 25th Jul 2015 9:43 pm 

    this is all bull,they have so many resources they haven’t even touched yet……gold for one,and they do take care of there own,the only resource they have touched is oil,you just don’t know how much they have.

  17. apneaman on Sat, 25th Jul 2015 10:01 pm 

    How do you know how much they have?

  18. Robert Wyatt on Sat, 25th Jul 2015 10:04 pm 

    We should kill the Saudi’s and take the oil

  19. screw the Saudis on Sat, 25th Jul 2015 10:08 pm 

    The situation is exacerbated by rapid population growth and a lack of relevant job skills among Saudi university graduates.

    They are raising nothing but a bunch or terrorists.

  20. screw the Saudis on Sat, 25th Jul 2015 10:13 pm 

    They are turning to solar and wind.

    What a joke….maybe they should captue the methane from their camels and their wives. As their wives look like their camels.

  21. Dutchman61 on Sat, 25th Jul 2015 10:51 pm 

    Oil is not a finite resource. The vast majority is produced by adiabatic processes underground from natural gas. It was only called a fossil fuel because the first oil fields were in Ohio and Pennsylvania next to coal fields which is fossil. And there are vast oil fields in the deep desert that the Saudis have not tapped due to the difficulties of dealing with 1000 ft dunes that can move 5-10 miles in a year. In fact, the Saudis are very interested in the ultra long reach horizontal drilling which would make it possible to tap thos oil fields.

  22. apneaman on Sat, 25th Jul 2015 10:54 pm 

    Two new liberty tards just wandered in on a Saturday night. Hey screw, I bet when the Jihadists are in paradise you are going to be one of the virgins they get to fuck.

  23. Walter on Sat, 25th Jul 2015 10:54 pm 

    “The age of oil is coming to an end”, said the guy with the 800 brake-horsepower Dodge.

    The Saudi’s will have their last hurrah — oil will continue to function as the global currency, until every single drop is sucked dry and humanity is left with no choice but to overhaul its outdated energy infrastructure (people are complacent, you see). By which point Saudi Arabia will be doomed… eventually. And when that happens, I predict Wahhabi Central is gonna get even more Wahhabi-er. What do you think?

  24. James Malenfant on Sat, 25th Jul 2015 11:17 pm 

    I completely agree, and it wasn’t until OPEC started making the news that I put everything together. The Saudis will never have control of the oil market again, and their mercantile economy, lack of skills, and propping up it’s welfare state, will consume all of it’s money.

    For the life of me, I cannot figure out their strategy. Flooding the market is not how you make the price go up. They have lost complete control, because the U.S. is now the top energy producer.

    The Saudis have a mercantile economy, they produce nothing but oil. Their universities are full of people with useless skills, and they don’t grow enough food to feed their people. Once the welfare state starts to crack, the population, that doesn’t like the leaders anyway, then things will start to crumble.

    We are already seeing the cracks appear. The United Arab Emirates just ceased subsidizing gasoline for consumers, and they are going to let it go with the world price.

    Car bombs in Saudi Arabia. Yep. and with their constant beheadings, only more unrest is to follow.

    All for greed, and religion. Meanwhile in North America, everything is just fine.

    Have a great day!

  25. ro on Sun, 26th Jul 2015 12:18 am 

    This is nonsense intended to get a reaction. The last thing I read was that they had about $800 billion to a Trillion dollars worth of reserves. $4 billion is like chump change to them. They could shut off all of the wells today and have enough money for decades to come.

  26. khawaja nawaz on Sun, 26th Jul 2015 12:26 am 

    The sooner this evil is bankrupt the better for the people of World, Muslims & in particular Sunnis. This evil Kingdom is source of financing hundreds of thousands of Madressahs which are churning out Mullahs who, when jobless, go get a job with Talibans, Daesh or organisations like Boko Haram or Al-Nusra.
    Every one of the 19 suicide bombers who attacked Twin Towers on 9/11 were citizens of this evil kingdom. I am not a Shia or someone who is personally aggrieved by Saudi Arabia. I am opposed to Kingship as an institution & coz of their financing the greatest evil of this century; Terrorist & extremist organizations.

  27. apneaman on Sun, 26th Jul 2015 12:43 am 

    America Goes Nuts

    “Hate to say I told ya so, especially when it’s this grim, but as the “American Dream” is morphing into the American Nightmare, the country is entering a profound state of sheer and utter psychosis. I’ve often said that mass shootings will eventually be so common in America that they will merit no more attention than the average traffic accident or burglary. It seems that day might have already arrived: There have been 204 mass shootings — and 204 days — in 2015 so far”

    http://hipcrime.blogspot.ca/2015/07/america-goes-nuts.html

  28. apneaman on Sun, 26th Jul 2015 12:53 am 

    America don’t need no stinking ME terrorists, she got more than enough of her own, hard at work everyday killing each other. Add that to the multiple daily police shootings of unarmed civilians, highest prison population, mass poverty, global drone attacks and the ME looks like a nice neighborhood. Which one is the evil kingdom?

    There have been 204 mass shootings — and 204 days — in 2015 so far

    http://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/24/there-have-been-204-mass-shootings-and-204-days-in-2015-so-far/?tid=sm_fb

  29. apneaman on Sun, 26th Jul 2015 1:10 am 

    “We should kill the Saudi’s and take the oil” Good luck with that.

    A Record of Unparalleled Failure

    “So here are five straightforward lessons — none acceptable in what passes for discussion and debate in this country — that could be drawn from that last half century of every kind of American warfare:

    1. No matter how you define American-style war or its goals, it doesn’t work. Ever.

    2. No matter how you pose the problems of our world, it doesn’t solve them. Never.

    3. No matter how often you cite the use of military force to “stabilize” or “protect” or “liberate” countries or regions, it is a destabilizing force.

    4. No matter how regularly you praise the American way of war and its “warriors,” the U.S. military is incapable of winning its wars.

    5. No matter how often American presidents claim that the U.S. military is “the finest fighting force in history,” the evidence is in: it isn’t.”

    http://www.tomdispatch.com/post/175854/tomgram%3A_engelhardt,_a_record_of_unparalleled_failure/

  30. apneaman on Sun, 26th Jul 2015 1:14 am 

    “Doha has just three days’ supply”: are water shortages the biggest threat to the Middle East?

    “Saudi Arabia alone burns 1.5m barrels of oil every day to desalinate water, an amount equivalent to the daily oil consumption of Italy”

    http://www.citymetric.com/horizons/doha-has-just-three-days-supply-are-water-shortages-biggest-threat-middle-east-1234

  31. almala on Sun, 26th Jul 2015 2:37 am 

    ولمدة 20 سنة كانوا يقرضون المال لصدام لكي يحارب ايران والشعب العراقي مجرد لكي يصبح الجدار العازل بين ايران وسعودية ولكن عدالة السماء غير مجري المياه لكي يتصالح أمريكا مع ايران ويدير ضهره للعرب لكي يتنازلوا الكثر واكثر والآن تورطوا في حرب ومستنقع اليمن ( خلية زرزور ) كما قال الملك السعودي قبل 30 سنة ، فانتصارات مؤقته لايعني شيئا مقابل جبروت شعب جوعان هوايته جمع الأسلحة في زمن الحرب والسلم فلا يوجد عائلة متمكنه في اليمن لايمتلك أسلحة متوسطة وليس الخفيفة فقط ، نحن رأينا انتصارات صدام في بداية الحرب مع ايران حين دخل المدن الحدودية في محمرة ولكن في ليلة وضحاها نهر كارون أصبح أحمر اللون بدم ابرياء من جنود المجبرين علي هجوم ايران وصدام المجرم يخطب خطاب الانتصار الوهمي ، فلاتستبعد هجوم يمني ألي المدن السعودية قريبا وماذا يحدث ويصبح ديون سعودية أكثر من ألدين العراقي لان الفساد أوسع

  32. afham on Sun, 26th Jul 2015 3:01 am 

    I think author mistypes Saudia Arabia instead of America

  33. Davy on Sun, 26th Jul 2015 7:28 am 

    The global economy is complex. The oil complex is complex. Once oil declines to some yet unknown point in quality and quantity the games is over. The quality and quantity are both important and represent the same thing when considering the end product. Both are declining depending on how the measurement is done. High quality easy to produce conventional oil is in decline this is not debatable. It is the combination of both deterioration of quality and quantity that will end the oil age.

    KSA will not be pumping much oil when the global economy is over. They will surely pump some or should I say somebody there will. KSA is ranked near the top of uninhabitable countries because of a country with an overly large population per consumption AND population overshoot. Take the KSA population in 1950 was roughly 3MIL today it is 30MIL. This is only because of oil, complexity, and global trade. KSA must import most of their food and that will not change.

    Oil is an economic commodity. It must be produced and distributed in an economic arrangement that allows significant economic effort to extract. This is never truer now that the free flowing oil fields are about tapped out. The global economy will likely quickly unravel once a serious longer term contraction is fully in place.

    Everything about the global economy is unsustainable and non-resilient without complexity and energy intensity. Complexity of production of vital imputes and complexity of finance and distribution. Once entropic decay sets in at all levels the oil complex will not function at meaningful levels per the current global economic requirements and current global population levels. What is more alarming for all of our delocalized locals is the global economy could just shut down taking our economic activity to much lower levels quickly.

    All locals are exposed to serious shortages of most vitals. Many locals are part of areas in mass population overshoot. Most areas not in population overshoot are in consumption and habitability overshoot. What I mean here is the level of complexity is so high that even the relatively smaller population is not sustainable. This could be because people live in a desert or too many people living too sophisticated a lifestyle per the energy and complexity available.

    KSA epitomizes both symptoms of overshoot. They are in population overshoot per carrying capacity. They are in complexity overshoot per the need for global trade to produce and sell their oil and import nearly everything that is vital for such a large population in a desert.

  34. Larry on Mon, 27th Jul 2015 2:50 pm 

    The Saudi’s have $680 billion in reserves. That will last along time! If their society is is on the brink of financial ruin because of a $ 4 bil bond offering I would think all of their Harvard and MIT trained princes would pull their crude oil production back a million bbls. Supply declines demand remains the same price goes up. Very misinformed article!

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