Saudi Arabia: seeking security (catch all)

[CrowBat]

...just because Oblabla is holding half the report on 9/11 locked due to Saudi involvement, means not it's really 'surprising' the Saudis are cooperating with al-Qaida, Moslem Brotherhood etc., especially so in Yemen.

If anybody 'imported' Wahhabism into that country, then it was the Saudis, and that with all force, and every Dollar they could spend for that purpose, already since early 1990s.

Much more worrying is the fact that the Saudis are dumb enough to believe they could hold the powers they have unleashed there 'under control'.

...and that nobody in the West cares about this.

Greetings from 'new' Saudi allies in Yemen:

Al Qaeda's branch in Yemen, which officials have called the terror group's most dangerous affiliate, has issued two threatening new communiques praising recent lone-wolf style attacks against the West and calling for more of them.

"We urge you to strike America in its own home and beyond," says a letter attributed to Ibrahim al-Asiri, the master bomb-maker with al Qaeda in the Arabian Peninsula (AQAP).
...

Hey... when one thinks of it... since Saudi Arabia is a US ally, the AQAP is now de-facto US ally too, or isn't it...?!?

[davidbfpo]

Sometimes I do wonder with all the history of the Yemen a BBC SME, from RUSI, can write this:

The retaking of a key air base to the north of the southern city of Aden is a major strategic victory for the Yemeni government in its fight against the Houthi-led insurgency.The al-Anad air base is important for a number of reasons.....is extremely important for operations against AQAP)....It was a badly kept secret that much of the US drone programme that targeted al-Qaeda operatives in the south of the country was based out of al-Anad....The recapture of the base and the surrounding areas will ensure that a long-term counter terror presence can be maintaine..

Link:http://www.bbc.co.uk/news/world-middle-east-33778116

Given that part of the anti-Houthi allaince is AQAP, let alone the stance of the Saudis, would the US be allowed to return and attack AQAP? I think not.

Then the BBC's own correspondent, Frank Gardner, reflects on the KSA's new assertiveness:

...the Saudi military has now been at war with Houthi rebels for more than four months....For Saudi Arabia, this is about more than just securing its southern flank.The Saudis fear they are being steadily encircled by Iranian allies and this is something they want to reverse.

Link:http://www.bbc.co.uk/news/world-middle-east-33825064

[davidbfpo]

Not sure what to make of this article, although Saud family rivalry is not new:http://www.middleeasteye.net/news/sa...pse-1612130905

[Firn]

Their intervention in Yemen doesn't seem to go all too well but perhaps more surprising has been the drop in their global assets. 50+ billion is only part of their holdings but it shows they have a huge deficit to cover:

With income from oil accounting for about 80 percent of revenue, Saudi Arabia’s budget deficit may widen to 20 percent of gross domestic product this year, according to the International Monetary Fund. SAMA plans to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year as it seeks to diversify its $752 billion economy, people familiar with the matter said in August.

Diversification has been buzzing around for decades, if I'm not mistakes. Funny how the Saudi manager of the pv plants is making exactly the same point as we did some years ago in the energy security thread. Cut the stupid fuel subsidies, save money and sell more abroad to get much more money. Then again this is basic math and common sense so it wasn't all that difficult to get right. In any case the public addiction to those state-sponsored prices will be hard to crack.

[Firn]

A while ago we talked about basic math and today's budget is an interesting exercise in it:

DEFICIT

The government forecasts the deficit will narrow to 326.2 billion riyals ($87 billion) in 2016, from 367 billion riyals [~$100bn] this year.

The 2015 deficit is about 16 percent of gross domestic product, according to Alp Eke, senior economist at National Bank of Abu Dhabi. The median estimate of 10 economists forecast a shortfall of 20 percent of GDP this year, according to data compiled by Bloomberg.

Beyond oil by McKinsey has a good, if somewhat constrained, executive summary with stunning stats and graphs. Among those gems is the amazing fact that private sector's part in the 75% household income growth in the last decade was less then 1%. Lots of other good graphic stuff...

A DECADE OF RISING PROSPERITY FUELED BY OIL

The Saudi economy moved up from being the 27th largest in the world in 2003 to become the 19th largest in 2014. Its nominal GDP of about $750 billion is larger than either Switzerland’s or Sweden’s. On a per capita basis, Saudi Arabia’s nominal GDP of about $24,000 is a little behind South Korea’s and ahead of Portugal’s, although the unique features of the Kingdom, including a sizable population of migrant laborers and a huge oil sector, make this figure misleading.

Saudi Arabia is the world’s largest oil exporter, deriving about 90 percent of government revenue from oil. The sharp increases in oil prices, which rose from about $30 per barrel in 2003 to a sustained peak of about $110 per barrel in 2011 to 2013 before dropping back in 2014, fueled a doubling of GDP during the decade. At a time of growing indebtedness across major developed and emerging economies since the 2008 financial crisis, Saudi Arabia has been a rare exception: the Kingdom eliminated national debt and increased
reserve assets to $732 billion, the equivalent of almost 100 percent of GDP in 2014.

Now the state's oversea funds are decreasing to cover together with bonds the $100bn or 16% deficit. Roughly $120bn of it's revenue came according to that article from oil, ~ 75% of it's total. Such relations make your head spin. In short Saudi Arabia has a huge problem stemming from those factors:

a) The economy is totally dependent on oil revenue which in turn props up the vast public sector
b) Expenditures have been rising rapidly along with a rapidly rising population
c) The little productive offical private sector has been crowded out and is dominated by foreigners

Oil revenue had to grow considerably per annum already in 2013 over the next decade to keep up with expenditure trend. Even oil at $100 wasn't enough going forward ten years, with Saudi energy consumption cutting ever more into it's exports and thus revenue.

So far for 2016 they calculate, at least according to the Bloomberg numbers, higher oil revenue then in 2015. Keep in mind that oil prices have been up to 40% for quite some time higher this year then they are now. They might of course shoot up again despite the supply glut but it is still a surprising to see that projection...

[davidbfpo]

Firn,

Thanks for that update (above) and a "lurker" has pointed out a different, though similar viewpoint in today's Daily Telegraph:http://www.telegraph.co.uk/finance/e...escalates.html

It appears to rely heavily on Dr Alsweilem, now at Harvard University's Belfer Centre.

I have not checked the McKinsey report you cite, but the article has this almost IMHO laughable suggestion attributed to McKinsey:

a McKinsey study – ‘Beyond Oil’ - that sketches how the country can break its unhealthy dependence on crude, and double GDP by 2030 with a $4 trillion investment blitz across eight industries, from petrochemicals to metals, steel, aluminium smelting, cars, electrical manufacturing, tourism, and healthcare.

[Firn]

Firn,

I have not checked the McKinsey report you cite, but the article has this almost IMHO laughable suggestion attributed to McKinsey:

Well, that is why I wrote about a "somewhat constrained" executive summary. The McKinsey guys I know are easily smart enough to understand in which kind of business they operate and who pays them for what. This doesn't devalue most of it's ideas but a "can do spirit" certainly helps in marketing them.

The value of "Beyond oil" lies in showing what happened with oil in the Saudi economy during the last decades. Some of that is captured neatly by those graphic graphs and stats. All in all the dire trends which I posted are nothing new and far more insightful guys like Evans-Pritchard and Khalid Alsweilem have come up with them before. Indeed two years ago the very author pointed out:

Prince Alwaleed bin Talal, the country’s best-known global investor, said the business model of Middle East oil exporters risks unravelling rich industrial states find ways of cutting demand. “Our country is facing a threat with the continuation of its near-complete reliance on oil: 92pc of the budget for this year depends on oil,” he said in a letter to Saudi oil minister Ali Al-Naimi.

In short if something can not go on forever it will stop, however the institutional imperative is very strong in the royal clan.

As this is the SWC it is proper to point out that military expenditures are about $60bn a year, roughly 40% of projected revenues for 2016. The Saudi defence budget is quite opaque, to put it mildly, and with no independent institutions things can easily be shifted around or kicked down into the next year. The takeaway is simply that it is massive relative to budget and indeed to the economy, no doubt in part due to the big salaries payed for the upper echelons.

Devaluation would of course help a great deal with some internal spending, witness Russia for which every $ goes now twice as far, and some of the military ones like salaries but should make replacing those bombs dropping in Yemen a lot more expensive.


Finally they seem to cut some of the harmful subsidies:

The Saudi government will raise the price of gasoline by two-thirds to 0.75 riyals a litre from 0.45 riyals for 91 Octane fuel. Higher electricity, water, and gas tariffs were announced by the Saudi Press Agency on Twitter, following the release of the Kingdom’s 2016 budget on Monday.

Subsidy cuts aim “to achieve efficiency in energy use, conserve natural resources, stop waste and irrational use”, the Ministry of Finance said in the annual budget statement. The changes will be monitored to ensure that they do not harm either “low and mid-income citizens [or] the competitiveness of the business sector,” the Ministry said.

P.S: In an ironic twist percentage-wise the dependence on oil of the Saudi revenues decreased this year from 93pc to 73pc just as they post a huge deficit largely because oil prices crashed...