As the EM world looks on helplessly while Saudi Arabia’s war with the US shale complex (and, by extension, with the Fed) serves to keep crude prices depressed putting enormous pressure on commodity currencies and accelerating emerging market outflows, the question is whether Riyadh’s SAMA piggy bank can outlast the various capital market lifelines available to America’s largely uneconomic shale drillers.
It’s tempting to simply say “yes.” That is, with the next round of revolver raids due in days and with HY spreads blowing out amid jittery US markets, it seems unlikely that maligned US producers will be able to survive for much longer, and despite the fact that data out yesterday shows Riyadh’s FX reserves falling to a 32-month low, the Saudi war chest still amounts to nearly $700 billion, giving the kingdom plenty of ammo. However, between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia’s fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20% of GDP.
Given the above, some have dared to suggest that in fact, the Saudis could lose this “war” just as they may be set to lose their status as regional power broker to Tehran thanks to Iran’s partnership with Moscow in the ongoing effort to shore up Assad in Syria and wrest control of Baghdad from the US.
But don’t tell that to Saudi Arabia’s Oil Minister Ali al-Naimi who says that despite all the uncertainty, the economics of oil exploration and production will prevail at the end of the day. Here’s Reuters, citing Economic Times:
Saudi Arabia’s Oil Minister Ali al-Naimi believes economic producers will prevail over higher-cost suppliers and OPEC’s share of the market will rise, India’s Economic Times newspaper reported on its website on Monday.
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