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The Coming Collapse of Saudi Arabia

Scorpio

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#1
The Coming Collapse of Saudi Arabia
Nick Giambruno


They met in secret to plan a devastating attack…

Two powerful men, colluding at a palace in the Middle East.

In September 2014, U.S. Secretary of State John Kerry flew to Saudi Arabia. He was there to meet with King Abdullah, the country’s ruler and one of the richest men in the world.

Informed observers say Kerry and Abdullah drew up a plan at this meeting to destroy their common enemies: Russia and Iran.

To carry out the attack, they wouldn’t use fighter jets, tanks and ground troops. They would use a much more powerful weapon…

Oil.

Oil is the world’s most traded commodity. Saudi Arabia is the world’s largest oil exporter. It has arguably more control over the price of oil than any other country does.

Insiders say Saudi Arabia agreed to flood the oil market at this secret meeting. The purpose was to drive down the price of oil. This would hurt Russia’s and Iran’s economies. They both depend heavily on oil sales.

They wanted to hurt Russia for supporting their regional foe, Syrian President Bashar al-Assad. They wanted to hurt Iran for the same reason. Iran is the Saudis’ fierce geopolitical rival in the region.

Their strategy has had some success.

As you can see in the chart below, the price of oil has plummeted over 70% since John Kerry’s secret meeting with King Abdullah in September 2014.



There’s so much conflict in the Middle East—but oil prices are falling.

And despite China’s economic slowdown…it still imported more oil in 2015 than in 2014. China is the world’s number two oil consumer behind the U.S.

Turmoil plus demand says oil should be going up, not down. But the mystery is explained by the Saudis’ oil war and their strategy of flooding the market to bankrupt competitors.

Saudi Arabia’s Other Target

The Saudis have also declared war on the U.S. shale oil industry.

In the 1990s, the U.S. imported close to 25% of its oil from Saudi Arabia. Today—because of high U.S. shale oil production—we import only 5%.

By keeping the market saturated with oil, the Saudis are driving down the price. They hope to drive it down low enough and long enough to bankrupt the shale industry…since shale oil costs more than Saudi oil to produce.

This would knock out a major competitor and let the Saudis regain lost market share.

But economic warfare doesn’t always go according to plan. I think the Saudis made a colossal mistake…

Impaled on Their Own Sword

I think the Saudis have overplayed their hand…big time.

Oil makes up 90% of Saudi government revenue. So the price drop has been very painful. They’re bleeding through their reserves.

The market is putting more pressure on their currency peg than at any time in its history.

For over 30 years, Saudi Arabia has pegged its currency at 3.75 riyals per U.S. dollar. To maintain this, it needs a large stash of U.S. dollars. With its historically large reserves, this has never been a problem.

But now, the Saudi budget is under serious pressure. The government is only staying afloat by draining its foreign exchange reserves. This threatens Saudi Arabia’s ability to support its currency peg.

If the currency peg breaks—which is exactly what the current market expects—the riyal would be devalued. This would increase the cost of living for Saudis across the board.

It would also increase social unrest.

The Saudis are also losing billions underwriting foolhardy wars in Yemen and Syria.

The Saudis thought they could support armed Syrian rebels and topple the Assad government in a matter of months. They figured Assad would fall just as easily as Gadhafi did in Libya in 2011. It was a gross miscalculation.

There’s also the Saudi war in Yemen, Saudi Arabia’s southern neighbor.

The Saudis launched the war in March 2015. They wanted to reinstate a Saudi-friendly government. The Saudis thought the intervention would last a few months, then they’d declare “mission accomplished” and go home. That’s not what happened.

The political and economic stars are aligning against the Saudis. It’s their most vulnerable moment since the kingdom was founded in 1932.

The Saudis are having some success. In the past year, at least 67 U.S. oil companies have filed for bankruptcy. Analysts estimate as many as 150 could follow. The shale oil industry is in “survival mode.”

And the crisis in the oil market could spread. That’s because many banks made big loans to these distressed shale oil companies. A wave of bankruptcies means those loans could go bad, which would be a huge threat to those banks.

It has the potential to trigger another meltdown in the financial system. The warning signs are there.

I wouldn’t own any bank that has big exposure to risky shale plays…nor keep my life savings there.

The Saudis have damaged the U.S. shale oil industry. And they’ll continue to cause more damage. But they won’t bankrupt every producer.

The shale industry has more staying power than Saudi Arabia. Some producers now say they’re profitable with $40 oil. And their pace of innovation will drive that even lower. The industry will survive.

All the Saudis have done is create an existential crisis for themselves.

If the Saudis don’t stop flooding the market—and there are no signs they will—they won’t be shooting themselves in the foot…but in the head. Saudi Arabia will either collapse or surrender—and stop flooding the market.

Either way, oil will eventually go a lot higher.

In the meantime, we have a huge opportunity…

The crisis in the oil market gives us a second chance to invest in the American shale revolution. Now is the time to get ready to buy the highest-quality shale companies at bargain prices.

You should view the Saudi-driven crisis in the oil market as your opportunity.

Great investors like Warren Buffett, the Rothschilds and Jim Rogers run toward a crisis. Crisis investing was a key part of their investment strategies. And it’s one anyone can use. New York Times best-selling author and crisis-investing pioneer Doug Casey just released a video that shows you exactly how. Click here to watch it now.






Nick Giambrunois Doug Casey's globetrotting companion and is the Senior Editor of Casey Research's International Man. He writes about economics, offshore banking, second passports, value investing in crisis markets, geopolitics, and surviving a financial collapse, among other topics. He is a CFA charterholder. In short, Nick's work helps people make the most of their personal freedom and financial opportunity around the world. To get his free video crash course, click here.







www.internationalman.com

http://www.silverbearcafe.com/private/03.16/saudi.html
 

earplugs

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#2
Still not enough damage to Saudi arabia, imho. Their entire ruling royalty need to be driven into the sea.
 

FunnyMoney

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#3
Still not enough damage to Saudi arabia, imho. Their entire ruling royalty need to be driven into the sea.
Sure, I understand that. But back to the point above about solar... it really was the ticket after the nine - sept event. We have the entire southwest where just about every house and every building would be perfect for a retrofit. The sun shines pretty much every day in that area of the country and tons of city structures already exist there. That would have been a bigger boost for the nation, (lasting basically forever) than those shale plays which are now no longer so lucrative.
 

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#4
All that needs to happen is a few major oil rigs get blown up.

I figured that Kerry's visit to Saud had something to do with the price of oil dropping.


Unfortunately, the cheaper fuel costs haven't worked their way down to consumer goods prices as fast as they went up! I guess they figure we benefit from lower fuel costs as well??


I remember years ago oil execs testifying in front of Congress that the price of oil was market driven and NOT manipulated.

We now know that was a lie.
 

Joe King

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#5
All that needs to happen is a few major oil rigs get blown up.

I figured that Kerry's visit to Saud had something to do with the price of oil dropping.


Unfortunately, the cheaper fuel costs haven't worked their way down to consumer goods prices as fast as they went up! I guess they figure we benefit from lower fuel costs as well??


I remember years ago oil execs testifying in front of Congress that the price of oil was market driven and NOT manipulated.

We now know that was a lie.
Regardless of the specific reasons for adding or decreasing supply, isn't still just market forces that ultimately react to it?
...and the charts I've seen only show about a 600,000 bpd increase in Saudi production between Sept '14 and mid '15, but between late '11 and '14 our production was up by at least 3,000,000 bpd.
How is that Kerrys fault? Did he conspire with US producers to increase production in '11?

If what Saudi is doing is so bad, why isn't what we did, bad too? Simply put, by having increased our production by such a large degree, we are the ones who've crashed the price of oil. Take away all our increased production and everything goes back to the way it was in '08.
....and while I'm no Saudi fan, we should be glad they have the agreement with us about pricing/selling oil in dollars. Could ya imagine how things would be if that were suddenly not the case? If oil were priced in some other currency, or even gold, ....starting tomorrow morning?
In the long run that's probably what needs to happen, someday. But being the biggest debtor nation in the World would not bode well for us, in such a World. Being able to export our inflation and the rest of the World (or at least most of it) willing to gobble it up, has certainly been to our benefit as a nation under the current monetary system.
If for whatever reason the US dollar should become just another currency among currencies in the World, what do you think is going to happen to all the $trillions currently being held throughout the World?

IMHO, when the House of Saud falls, it will spell the end for our deal with Saudi Arabia. What happens then?
 

FunnyMoney

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#6
JoeKing, post: 997172, member: 365: "IMHO, when the House of ---- falls, it will spell the end for our deal with Sa.... What happens then? /QUOTE]


War happens. Getting a few large players to spend some capital right now there is just the warm up. It's about staying power. It's a high stakes poker game, going all in and the results from the "flop" mean nothing when the guns get drawn. My timeline is next decade and we have been examining the 2017 to 2025 period for a long time, since around 2005.

bb,

The first ... predicted to be mostly economic, starting in 2017. After that a period of economic attrition and slowly building up the conflicts. Next decade is predicted to be the time when they really get going. Still too soon to call all the details but in general, that is considered the most likely scenario across alternative media analysts.

It's a globally tied in system. As third world nations fall into the abyss, money flows toward the more stable and still somewhat functioning regions and financial opportunities. The USA will be one of the last shoes to drop, many more cases like Venezuela will come first.
 
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earplugs

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#7
Sure, I understand that. But back to the point above about solar... it really was the ticket after the nine - sept event. We have the entire southwest where just about every house and every building would be perfect for a retrofit. The sun shines pretty much every day in that area of the country and tons of city structures already exist there. That would have been a bigger boost for the nation, (lasting basically forever) than those shale plays which are now no longer so lucrative.

yeah, of course, but the system is so entrenched and rigged that change is practically impossible. even of an individual basis, it's hard for most home owners to get permission to have solar. then there's cost, where most people barely have two nickels to rub together. it's easier to pass some bullchit obamacare that extracts 2x-3x insurance costs than to get people and businesses to adopt solar.
 

solarion

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#8
...to say nothing of Richard Bruce Cheney's well known connections to a certain oil services company.
 

gringott

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#9
The petrodollar was bound to end someday, sooner is better than later IMHO.
All solar in the USA, you are talking about a pipe dream that would never have happened no matter who was in the White House.
It doesn't make economic sense in a good part of the country.
Look at the taxpayer cash Obama dumped into alternative power, the well-connected cronies were stealing left, right and center.
With the Bush rant, did you forget Obama?
Government isn't the answer. Alternative energy at a competitive price to coal and oil is.
Get in the laboratory and make it happen, the customers will beat feet to your door.
If solar wasn't competitive at over $100 a barrel crude, how is going to be competitive at under $40?

I've priced it over and over and over. In my area, even when they had a government subsidy, it took decades to get a ROI.
Didn't make economic sense. You have to have that first.
As for electric cars, guess what?
The people in general don't want what they are selling, even with huge government tax subsidies.
They wouldn't even be on the market if it weren't for government rules and regulations about fleet fuel mileage etc.
I am a person who would LIKE to have an electric car, but it has to make economic and practical sense first.
 

FunnyMoney

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#10
...
If solar wasn't competitive at over $100 a barrel crude, how is going to be competitive at under $40?
....
I'm not talking about a competitive business model, what I'm talking about is the initial 2 trillion dollars that was spent (along with blood) into a ME hole. And I'm talking about the 3 trillion that was spent over the last 10 year. Estimates are now at 5 trillion dollars total between 2001 and 2016 for the war in the ME.

The gov't will spend the money somewhere, they will spend it on wars or on kickbacks to other nations and their friends.
It would be better if we had been able to make them spend it on solar factories and putting solar on every building in the southwestern part of the nation. There is no way that a project like that would have cost over 5 trillion, and the benefits would have been enormous and the price of oil would have long since collapsed, bringing down all the foes in the ME and Russia as well. Strategy can work better than war, but the globalist don't want that, so it didn't happen and it won't happen.
 

gringott

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#11
I'm not talking about a competitive business model, what I'm talking about is the initial 2 trillion dollars that was spent (along with blood) into a ME hole. And I'm talking about the 3 trillion that was spent over the last 10 year. Estimates are now at 5 trillion dollars total between 2001 and 2016 for the war in the ME.

The gov't will spend the money somewhere, they will spend it on wars or on kickbacks to other nations and their friends.
It would be better if we had been able to make them spend it on solar factories and putting solar on every building in the southwestern part of the nation. There is no way that a project like that would have cost over 5 trillion, and the benefits would have been enormous and the price of oil would have long since collapsed, bringing down all the foes in the ME and Russia as well. Strategy can work better than war, but the globalist don't want that, so it didn't happen and it won't happen.
It's a nice idea, but it would never have happened, period. It's called reality. Hell, they could have given every person in Viet Nam a million bucks not to fight and it would have been cheaper. But it's not reality.
 

Joe King

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I'm not talking about a competitive business model,
Then it ain't gonna happen.

As for electric cars, guess what?
The people in general don't want what they are selling, even with huge government tax subsidies.
They wouldn't even be on the market if it weren't for government rules and regulations about fleet fuel mileage etc.
I am a person who would LIKE to have an electric car, but it has to make economic and practical sense first.

Yep, electric cars are about the dumbest thing ever. Let's assume that all or at least most cars are electric. What would we do with all the gasoline that would still be produced via refining? If you still need all the other products derived from a barrel of oil, is there a way of not getting gasoline too? Not as far as I know. If you still get gasoline and it's no longer needed as fuel, does it become a waste by-product of the refining process? Something to be burned off and wasted? While we spend even more $ burning more coal and more nat gas to generate electric for all those millions of electric cars. I thought the whole point of electric cars was so we didn't have to burn the gasoline.

Until it's cheaper in real dollars over-all, there's no way electric cars are ever going to be than just a small percentage of the overall fleet.
...and as long as gasoline is readily available for less, why not use it? To not use it is to waste almost half of every barrel of oil.

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