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The Saudis Dig In

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In an effort to subsidize its increasingly assertive foreign policy in the Middle East, in addition to its ongoing energy war against shale oil producers in the West and other oil powers such as Russia, the Kingdom of Saudi Arabia is reportedly preparing to incur uncharacteristically high levels of debt by tapping into global bond markets. Forbes' Nathan Vardi has more:

"[T]here are signs that Saudi Arabia is preparing to double down on its strategy with debt. The Financial Times reports that Saudi Arabia is getting ready to borrow funds in the international bond market to further finance its big effort to protect its market share in the oil world and make life impossible for U.S. shale. Saudi Arabia needs the money to keep its expensive social contract going in the face of rising budget deficits that are the result of its fast diminishing oil revenues. The oil kingdom is under further financial stress because of its costly military intervention in Yemen.

[...]

"In a way, Saudi Arabia is taking a page out of the playbook of the U.S. shale producers, which have become the most powerful force in the global oil market -- the swing producer -- financing their huge expansion with cheap debt. Russia's Igor Sechin, president of oil giant Rosneft, recently said that U.S. shale oil has steam rolled into control of the world oil market backed by $150 billion of debt."

That aforementioned "social contract" between Saudi monarch and subject, in practice, requires the Kingdom to dole out billions of dollars each year to maintain artificially low gas and heating costs for its citizens -- subsidies the Saudis are loath to curtail. Such payouts to the public can be absorbed when the price of oil is high and royal coffers are full, but a down global oil market has diminished the options at Riyadh's disposal.

Although the Saudis are arguably better positioned than most to weather the down oil market, debt financing is relatively new and risky terrain for the Kingdom. Vardi explains:

"Saudi Arabia could increase debt levels as high as 50% of gross domestic product within five years, up from extremely low levels today. The stakes are always higher when debt is involved. For U.S. shale, the corporate debt markets have remained robust and U.S. corporate bankruptcy law means that even those companies that fail might only be scooped up by distressed investors waiting on the sidelines with boatloads of cash and ready to turn things on again if oil prices rise. Saudi Arabia will have to prove that it can be equally nimble carrying a large debt load on its back."

In other words, when U.S. producers go out of business, others may swoop in to seize the investment opportunity. And while retail and other tangentially related industries may be negatively affected by a downturn in the Texas oil sector, the impact on the greater U.S. economy tends to be relatively isolated. Lower "discretionary spending" in Lubbock or Houston isn't the same, however, as in Jeddah or Riyadh, where citizens consume artificially large amounts of energy thanks in part to subsidized costs. And though the monarchy is moving to diversify its economy and direct more of its fossil fuels toward domestic industry, such a transition could take years, even decades -- time the cash-strapped Saudis do not have at the moment.

More on this:

RealClearEnergy.org

Saudi Arabia Caught Between Two Credit Ratings -- Al-Monitor

Another Potential Oil Crisis in the Middle East -- Brookings Institution

Saudi Arabia Says Will Diversify Oil Economy to Slow Climate Change -- Reuters

 

Around the Region

A no-fly no-go? Cato's Ted Galen Carpenter pours cold water on the notion of developing a no-fly zone in Syria to protect civilians and rebels:

"[S]pecial circumstances in Syria make the no-fly proposal even more dangerous than normal. Russia has intervened in that country and is flying numerous combat missions against rebel units. Establishing a no-fly zone over Moscow's objections would be extremely provocative. Yet neither Clinton nor the GOP hawks gave any hint that creating the zone should be contingent on Russia's consent. Indeed, there was an undertone in the debate comments by Rubio and Fiorina that imposing the zone would be an effective way to humiliate Vladimir Putin and make it clear that Russia would not be able to exercise influence in the Middle East.

"If that is the nature of no-fly zone proposals, they are extraordinarily reckless. How would we enforce the unilateral no-fly edict? Would we actually shoot down Russian planes if they dared continue their combat flights? That would carry the obvious risk that Moscow might respond in kind -- and that would bring two nuclear-armed powers to the brink of all-out war."

"Paradise or hell." Reuters provides a window into the mind of Anwar Abu Zaid, the alleged gunman behind Monday's deadly attack at a U.S.-funded police training facility near Amman, Jordan:

"Days before he shot dead five people in a canteen during his lunch break, Jordanian police officer Anwar Abu Zaid sent a message to friends saying he was going on a journey to ‘paradise or hell,' friends and security sources said.

"The message, on the WhatsApp mobile messaging application, may hold clues for police seeking a motive for Monday's shooting spree in which two Americans, two Jordanians and a South African were killed at a police training facility.

[...]

"‘When we prepare our luggage for a journey ... we fear we may forget something, however small, and the longer the journey, the stronger the concern that we won't forget anything,' the source quoted him as saying. ‘So what if we are going to a residence ... in paradise or hell,' the source added, but did not say on which day the message was sent."

Egypt's scorched earth. Cairo-based journalist Emily Crane Linn explains how Egypt's rural poor are still reeling from a devastating summertime heat wave across the Middle East:

"Egypt is seemingly getting hotter with every passing year. As of 2010, data from the Egyptian Meteorological Authority showed that Egypt's five hottest years in recorded history have occurred from 2002 onward. The data also showed that heat waves are becoming more common and prolonged.

[...]

"Additionally, rising temperatures can lead to an increase in parasitic diseases, Wael Lotfy, a professor of parasitology at the faculty of medical research at Alexandria University, told Al-Monitor. What worries him most is the possibility that in the next three or four decades, malaria could be reintroduced to Egypt if malaria-carrying mosquitoes begin to migrate north from Sudan."

Oprah of the Arab world? Finally, The Daily Beast's Lloyd Grove profiles Arab talk show host Zainab Salbi:

"It has been a long, strange trip for Iraqi-born author/activist Zainab Salbi, who grew up in Saddam Hussein's inner circle, the daughter of the despot's personal pilot, and today -- a quarter-century later -- is on the cusp of becoming the Arab world's Oprah Winfrey.

"‘I want to get people out of their comfort zone and encourage a more honest, uninhibited conversation,' says the 46-year-old Salbi, who has just launched the first season of Nida'a ("The Calling"), an Oprah-like weekly talk show that is aimed at shaking up the womanly conventions of Arab society and, in partnership with Discovery/TLC Arabia, is beamed into 22 Muslim countries in the Middle East and North Africa."

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