
Saudi stocks slump as minister warns of ‘painful’ measures ahead - samspenc
https://www.bloomberg.com/news/articles/2020-05-03/saudi-stocks-slump-as-minister-warns-of-painful-measures-ahead
======
Jerry2
Looks like Saudi regime is in big trouble. They won't be able to balance their
budget with oil prices so low and they won't be able to make payments to
thousands of their princes.

I did some searching and found few interesting data points:

> _For dozens of oil producers, the plunge in oil prices is devastating. No
> major oil producer can balance its budget at prices below $40; according to
> the International Monetary Fund, with the exception of Qatar, every country
> in the Middle East requires at least $60, with Algeria at $157 and Iran at a
> whopping $390. The average Brent price of oil over the past month has been a
> hair above $20._ [1]

and this from 2019:

> _Top oil exporter Saudi Arabia would need oil priced at $80-$85 a barrel to
> balance its budget this year, an International Monetary Fund official said._
> [2]

Given that WTI is at $19 and Arab Light at $21, there's going to be lots of
internal changes in ME in the coming years. Probably a few wars too.

[1]
[https://www.bloomberg.com/opinion/articles/2020-04-29/covid-...](https://www.bloomberg.com/opinion/articles/2020-04-29/covid-19-oil-
collapse-is-geopolitical-reset-in-disguise)

[2] [https://www.reuters.com/article/us-saudi-economy-
imf/saudi-a...](https://www.reuters.com/article/us-saudi-economy-imf/saudi-
arabia-would-need-oil-at-80-85-a-barrel-to-balance-budget-imf-official-
idUSKCN1Q01N0)

~~~
emilsedgh
I'm an Iranian who moved to the U.S. only a few years ago.

Something most people here in the U.S. don't understand is that countries like
Iran have a far different threshold of pain.

Iran, as a result of sanctions had already entered starvation-levels of
economic collapse. There are people who are sleeping in open graves. Yet, the
regime is not backing down in any way. It hasn't change course at all.

~~~
darkerside
What does sleeping in an open grave mean?

While you were in Iran, were you involved in what the US called the Arab
Spring? Was it really spread by Twitter? Did it seem like the regime might
topple?

~~~
emilsedgh
That means they find an unused grave and sleep in it [0]. Google images has
some pretty disturbing pictures of the phenomena.

Iran had green movement [1] which happened earlier than Arab Spring. Peaceful
protesters rushed to the streets after a fraudulent election and hundreds were
murdered by the regime.

The other candidates have been under home arrest ever since.

[0]
[https://en.wikipedia.org/wiki/Grave_Dwellers](https://en.wikipedia.org/wiki/Grave_Dwellers)

[1]
[https://en.wikipedia.org/wiki/Iranian_Green_Movement](https://en.wikipedia.org/wiki/Iranian_Green_Movement)

~~~
darkerside
You're right. I was thinking of Green Movement, not the Arab Spring. Thankss
for correcting.

------
TempHNAcc
The other comments are talking about oil, but because of COVID-19, Hajj and
Umrah are not taking place this year.

The Hajj and the Umrah add around $12 billion per year to KSA's GDP (7% of the
GDP).

The closing of the Haramayn (the Mosques of Makkah and Madina) crippled
internal tourism which amounts to lots of money.

~~~
JumpCrisscross
> _The Hajj and the Umrah add around $12 billion per year to KSA 's GDP_

Much of that revenue is FX. That increases its value, riyal for riyal, to the
fixed-rate currency Kingdom.

------
haltingproblem
I have always believed in half-jest/half-seriousness that the big mistake the
US made in the first Gulf war was to attack Saddam instead of sending him a
TomTom GPS with directions to Riyadh from Kuwait. Imagine, no 9/11, no ISIS.

The Saudi regime is one of the worst things to happen in the history of the
world to _Muslims_ and the rest of the world. Middle Eastern culture threw up
people like Averroes (father or modern rationalism), Avicenna and Ibn Khaldun.
I speculate but pretty sure that the Middle East produce less scientific
literature than Taiwan. Saudi Regime driven Wahabism has turned Islam back by
centuries aspiring to a regressive state of the 6th century with about 20% of
the population radicalized. Women recently got the right to drive in SA, we
can just imagine the state of other rights. Wahabism other effect is on
radicalization of other regimes like Turkey and Iran. The Turks were
relatively progressive people but to compete with the Saudis for global
leadership of all Muslims, Ergodan has pushed further and further towards
conservative political Islam. The Islamic population of Indonesia and Malyasia
was once moderate, tolerant and dynamic. Now after 20 years of Wahabi
indoctrination they are bombing churches.

For all of Elon's bizarre views, repugnant and quixotic, his contribution to
the electrification of transport alone warrants a Nobel Peace Prize (and any
other prize we can give him).

The Al-Sauds are probably too entrenched in the political and economic fabric
of the world to go anywhere for a couple of decades. The US establishment has
enough of their skin in its own game to shield them and also in fear of what
comes next. Oil Prices permanently collapsing to a sub $20 level will not end
the Saudi regime but reduce its appetite for extra-curricular activities.

~~~
duxup
I think the moment anyone decides on a violent regime change... it's a roll of
the dice.

People rightfully take issue with US involvement in some regime changes... but
it seems many of those people have their own plans that seem no more likely to
result in a positive outcome.

~~~
haltingproblem
I could not agree more.

The second gulf war led to ISIS and the rise of the Quds force and the general
destruction of society in Iraq/Syria. ISIS is an an existential danger to the
world as asymmetrical warfare can have high-impact outcomes beyond our
imagination. In comparison, Saddam's Bath party was secular socialists.

Libyan intervention led to the disintegration of a stable and despotic regime
but today there are slave markets in Libya!

Our best hope is that the Saudi regime shrivels and withers away but undoing
50 years of Wahabism will take hundreds of years.

~~~
Mediterraneo10
Saddam's Baath party were no longer "secular socialists" by the time of the US
invasion. Saddam Hussein had begun pivoting towards islamism already in 1993.
This had little to do with any direct US actions, and can to a large extent be
blamed on the collapse of the USSR and Eastern Bloc, which discredited the
secular Arab socialist traditions as a viable force.

------
ashtonkem
Can the Saudi government survive a reduction in services? Their economy is
largely built around the distribution of oil sale proceeds, I’m worried that
cutting benefits might destabilize that regime.

~~~
gaukes
Ya, and they were diversifying into tourism which is also bust.

I’m sure they’ll survive though. Their wealth is in the trillions.

~~~
ashtonkem
The Saudi budget is a quarter of a trillion dollars. “Trillions” doesn’t last
very long at those levels.

~~~
arcticbull
Sounds like at least 4-5 years.

~~~
ashtonkem
\+ increased borrowing costs as the deficits begin to worry investors.

------
aazaa
> The collapse in crude prices and the government’s drawdown of foreign
> reserves is putting more pressure on the Saudi riyal. Still, prices for
> 12-month dollar-riyal forward contracts are well short of their all-time
> high reached in 2016.

> A currency devaluation would be too costly for Saudi Arabia and the better
> option is to adapt to the oil shock through fiscal changes, according to
> Goldman Sachs Group Inc.

Like many countries in the region, the Saudi currency is currently "pegged" to
the US dollar. So the devaluation being discussed means abandoning the
exchange rate that's been in place since 1986.

[https://en.wikipedia.org/wiki/Saudi_riyal#Fixed_exchange_rat...](https://en.wikipedia.org/wiki/Saudi_riyal#Fixed_exchange_rate)

------
Etheryte
The image caption used in this article, and in many similar pieces, is
honestly somewhat scary:

> Why Now Is the Time to Be Buying Big Oil Stocks

This is dangerous advice given most investors, never mind casual investors,
don't understand how the oil market works. Last I checked, there is no
convenient way to invest in the spot price of oil eventually going up. People
who buy "oil ETFs" like USO hoping to cash out if the price rises later don't
understand how the underlying asset works, and end up losing a lot of money
[1].

Using captions like that is simply irresponsible and should be avoided.

[1] [https://www.cnbc.com/2020/04/21/retail-investors-who-
believe...](https://www.cnbc.com/2020/04/21/retail-investors-who-believed-
they-were-investing-in-crude-oil-get-a-rude-awakening.html)

~~~
echelon
How is investing in oil majors or low-leveraged midstream a bad idea?

Not only do many of these companies have a good balance sheet, but they're
4-6X undervalued if you're long on the investment.

Furthermore, these companies are at price points where the dividend yield is
30-60%. You could put a percentage of your yearly salary in and retire on
passive income when the market returns to normal.

Having a passive income stream is the ultimate way to pursue building a
startup.

Oil will come back.

~~~
pmorici
I don't follow, dividend yields on the 6 oil majors range from ~5-12% as far
as I can tell. It's a far cry from 30-60%. Also many oil companies especially
outside of the majors are notorious from having huge debt loads.

~~~
arcticbull
I assume the parent is referring to the fact that companies, like Occidental
($OXY) were paying $3.18/share in annual dividends prior to this crash, while
trading in the mid-high $40's (~9%). Now that $OXY is down at a near-term high
of $15/share that dividend yield represents 21.2%. A few weeks ago it was down
at $10/share (~31.8%). That's just one off-hand example, and it's pretty
comparable across the industry. Even big players like $XOM were/are in a
similar boat, if not to the same extent.

$OXY earnings is coming up this week and I suspect that dividend is going to
get slaughtered -- after all, they elected to pay Warren Buffet's special
dividend in stock in lieu of cash. If the op is super-long term, I assume
they're suggesting that the stock could return, and with it, the dividend,
which would be "30%" of your original investment.

------
neonate
[https://archive.md/qJd9r](https://archive.md/qJd9r)

------
Bang2Bay
Saudi has been investing heavily in the US stock market. At somepoint they
were holding TSLA as well, despite relying on oil for their living.

~~~
pengaru
> Saudi has been investing heavily in the US stock market. At somepoint they
> were holding TSLA as well, despite relying on oil for their living.

Is garden variety hedging and diversification really all that noteworthy?

~~~
blaser-waffle
Indeed. Any large holding company is going to hold some, even a lot, of US
stocks and assets -- theres be where the big money is. Same holds true for the
Norwegian Sovereign Wealth Fund, or the Ontario Teacher's Union Pension Plan
(two other large state-related investors)

------
unreal37
Yes the oil industry is going to take years to recover from 2020.

~~~
Zenst
Maybe not as it's a supply and demand market, supply outstrips demand so more
costly extraction shuts down (shale being one of them), you then see price
rise as less supply and always some demand as they always balance out and
then, you see other sources viable to extract - rinse repeat.

SO to recover to the same level of usage - I kinda hope it doesn't and we see
a gradual reduction once things back to the new normal. But shall see. Problem
is as it gets cheaper due to surplus - other uses become viable like
generating electric as cheaper per KW than buying from the grid or other
sources. Things like that, so the nuances of all this are all down to how we
define normal after this lockdown. Either way, the industry will carry on,
just price accordingly.

------
bit_logic
Many of these oil countries and companies are lacking in vision. They could
survive and even thrive in a post-fossil fuel world if they would invest now
and see oil as not just fossil fuel, but a means of storage and transport.

The key weakness of renewables (wind and solar) is a mismatch between
production and use. It's intermittent, you can't control when the wind blows
or sun shines. The solution many think of is giant batteries like those
produced by Tesla.

But there are technologies that can take a CO2 source+water+electricity and
create synthetic oil. The Middle East is a giant desert, perfect for covering
with solar. Texas is known to be a great place for wind. Imagine if these
economies went all in on solar/wind + synthetic oil generation. They already
have the full oil infrastructure in place to process/refine/transport
throughout the world. Just switch the source from the ground (fossil fuel) to
solar/wind+synthetic oil generation. If they're smart, they would push hard
for carbon tax at the same time. Because solar/wind+synthetic oil is carbon
neutral (take CO2 from the air, burn later during combustion). It would put
out of business their competitors still stuck on old fossil sources.

~~~
bagacrap
Texas is leading the US on wind. I don't think the American energy companies
plan to die out as fossil fuels lose preeminence.

