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Something Just Snapped In Saudi Money Markets

Away from the headlines about The Panama Papers, global financial markets turmoiled quietly this week with a surge in equity and FX volatility and banks suffering more death blows. However, something happened in Saudi Arabia's banking system that was largely uncovered by anyone in the mainstream... overnight deposit rates exploded to their highest since the financial crisis in 2009...


(Click to enlarge)

It is clear that that the stress in Saudi markets has spread from the forward derivatives markets to actual funding problems. Related: Are The Saudis And Russians Deliberately Sabotaging Doha?

(Click to enlarge)

This suggests one of the two main things: either Saudi banks are desperately short of liquidity or Saudi banks do not trust one another and are charging considerably more to account for the suspected credit risk.


Either way, not good. So what is going on behind the scenes in Saudi Arabia?

By Zerohedge

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  • John Scior on April 13 2016 said:
    I found an excellent article from Bloomberg that might be beneficially worth reading and I am providing a link. :


    I hope you find this interesting/useful/ worth your time reading.


    John Scior
  • John Scior on April 13 2016 said:
    Mr. Turi,

    I made my 20-30 year estimation just from figures I had I previously read about. I have read world oil proved reserves of top 17 countries is at 1324 Billion barrels and current world oil consumption is at 94 million barrels per day ( 34 billion per year ), so based o those numbers it looks like 38 years supply of proven world oil reserves at present. Of course many variables affect those numbers such as how much of the actual proven reserves are economically recoverable ( I've read that only a percentage of those reserves is economically recoverable ) then one should factor in the supply side things like technological advances like fracking for oil extends the supply but things like emerging countries oil demand increasing ( such as China's move from an emerging economy to one of a more modern society with grater use of energy ) causes the rate of demand or world drawdown of reserves to increase. Some numbers or proven world oil reserves are in doubt so its almost impossible to get a 100 % accurate prediction when oil as a transportation fuel is beyond economic feasibility.
    Alternatives or substitutes make sense when oil is so highly priced. within the pat 10 years, these alternatives have seen great advances. We see today due to lower oil prices, that these alternatives are less realistic competitors to gasoline powered vehicles and are thus declining. This may be an important factor that is ignored by the media as they want to give a simple answer to a complex question. Why are the Saudi's increasing production ?? "Oh, they want to drive frackers out of business."
    Whatever the time frame, there will come a day when relatively cheap oil is no more and another alternative must be developed. When a country such as Saudi Arabia has a wealth of oil in its "bank " ( ie below ground as proven oil reserves ) they want to extend the viability of that resource by preventing say cellulosic ethanol from becoming a non-subsidized competitor or say electric vehicles from replacing gasoline powered automobiles.
    Getting back to the point of this article, the Saudi's realize that at some point, ( be it 20, 30 or even 60 year away ) an alternative to oil will happen. They have been cutting subsidies and attempting to move toward a more market based economy before their oil revenues are far surpassed by non-economically viable subsidized businesses. By cutting the strings so to speak, these businesses become more risky and thus may be an explanation for the increase i n interest rates in the Saudi Money markets.
  • Bernie Turi on April 12 2016 said:
    Mr. Scior,

    I wholeheartedly doubt that fossil fuels will be replaced in 20-30 years, if that is what you mean by the "age of fossil fuels is nearing its end." Natural gas as a fuel is only becoming more and more popular due to its unchallengeably cheap economics. And, when Tesla aims to sell half a million cars per year over the next decade (which is a drop in the bucket), that says that gas is here to stay- for much longer than 30 years.The sad truth is that without government subsidies, these alternative fuels would never be competitive and will only drain tax dollars at an ever-increasing rate.

    However, I like that you doubt the mainstream media focus of the low oil price as purely a means to salvage Saudi market share. In my view, which is entirely speculation, a low oil price serves the medium/long term geopolitical goals of those conducting United States' foreign policy. The Saudis were encouraged to do so during the 1980s which eventually crippled the Soviet Union (among other things), and history certainly repeats itself.

    Bernie Turi
  • John Scior on April 12 2016 said:
    My own personal opinion based on a number of observations I've taken notice of is ( and this is speculation ) , it seems that Saudi Arabia is attempting to transition away from an economy that is wholly dependent on oil revenues. Perhaps this is because they realize the age of fossil fuels is nearing its end ( 20-30 years away) and they need to wean themselves from subsidies derived from oil exports. Although the main media focus for the reason the Saudi's are keeping production high and thus low oil prices seems to center around the idea the Saudi's want to harm or push out US frackers, they may have come to the conclusion that as oil becomes scarcer and scarcer, substitute fuels ( such as NG, LPG , biofuels, or even electric vehicles ) will seem more plausible as a substitute for the more expensive oil. Thus a good paradigm might be to look at their oil reserves as a bank account holding money that is only good for a limited time. The desire then is to convert this money from a perishable good to one that can earn interest for them down the road to fund their government when the oil no longer flows. As fewer Saudi business enterprises are subsidized, the risk element goes up and this in turn would explain the higher interest rates being charged. Non-ecomically feasible companies will be eliminated.

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