Posted on 01/05/2016 10:06:44 AM PST by BenLurkin
The falling oil price has pressured Riyadh's coffers, pushing the government to lay out budget cuts last week. The clash with Iran could magnify regional tensions and push Saudi Arabia's defense costs up as it fights an expensive war in Yemen and supports allies in conflicts elsewhere.
"We have a new economic reality in the Gulf region, with oil prices so much lower," said Michael Cirami, a portfolio manager at Eaton Vance. "That requires an adjustment."
Mr. Cirami, who isn't currently making this bet, thinks Riyadh is unlikely to scrap its peg in 2016, but will come under growing pressure to shift its policy in the next few years.
The riyal is currently fixed at 3.75 to the dollar, and one-year forward contracts were buying the greenback for 3.822 on Tuesday, close to the 16-year high of 3.8235 hit on Monday.
Those contemplating an end to the peg say that the resulting devaluation would be much larger than the 2% decline priced in by the forward contracts. A large devaluation would ease the government's budget woes, given much of its spending is in riyals and the bulk of its revenues come from oil priced in dollars.
The Kingdom is also burning through dollar reserves accrued through a decade of high oil prices to prop up its currency. Those reserves fell to $635.2 billion at the end of November, down 15% from a peak of $746 billion in August last year, according to the latest central bank data.
(Excerpt) Read more at wsj.com ...
Interesting. Prolonged challenges to keep the Saudi royal family on its perch could drain those reserves quickly. At some point do the royals take off with what’s left of the wealth, and leave the population to fend for itself?
ahhh, yes, Dollar Peg, the cheapest gal in the brothel...
Ala..Nguyen Van Thieu, of South Vietnam?...................
And the still beating black heart of the fed monster attacking freedom as we speak. You do know that when Petro Dollar ceases, so does the dollar itself. Economic TEOTWAKI, or SHTF time! No wonder we see these actions unfolding now.
Thieu or Diem?
One ended much better than the other.
I can’t remember. One Nguyen looks just about like another............But it was reported at the time that he left SV with the treasury in gold bars. And Wiki has this:
Life in exile
President Thieu
In his farewell speech, Thiệu said, “I resign, but I do not desert”,[4] but he fled to Taiwan on a C-118 transport plane five days later.[4] According to Morley Safer, the CIA was involved in the flight of Thieu, his aides, and a “planeload of suitcases containing heavy metal”
https://en.wikipedia.org/wiki/Nguy%E1%BB%85n_V%C4%83n_Thi%E1%BB%87u
Yup. Diem was the one the CIA shot when he wouldn’t play ball with us.
Not the “best” times for the US.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.