Interesting analysis but assumes 1) East-West pipeline can’t be attacked by Iran or Houthi’s won’t attack tankers in the Red Sea 2) There is no risk that running below production capacity damages long term production 3) Saudi sees little risk in Iran hitting non-oil infrastructure eg desalination plants 4) Longer term instability doesn’t incentivise long term switching away from Gulf oil / products.
From a narrow, financial perspective it may well be so. There is obviously more than a financial perspective to the war. An extended war increases the risk for Saudi Arabia, and all Gulf emirates, that Iran could get through with one or the other rocket, or drone, and cause severe damage on everything within reach. As the 4000 km-rocket towards Diego Garcia demonstrated, Iran may still have hidden capabilities. So far they have spared desalination plants and other possible targets.
This is not quite accurate, with all due respect. Saudi Arabia will still benefit from the rise in oil prices even if it exports fewer barrels. However, the negative side is that GDP could shrink significantly, because real GDP is affected by the volume of production rather than the price, and that is what matters most for the Saudi economy. This has become even more important since Saudi Arabia began relying more on the bond market.
A decline in GDP would raise the debt to GDP ratio, which in turn would increase borrowing costs at a time when the country relies heavily on debt financing. If you combine the benefit of higher oil prices with the negative effects of the war, such as lower petrochemical exports, weaker tourism, higher defense spending, increased risk premiums, and a possible impact on foreign direct investment, the overall negative effect of the current situation appears larger. So, there is no way the WSJ article is accurate.
Doesn’t this depend on how the Saudi government spends the revenue it receives from exports of the oil? Isn’t there room for some movement on this, even if it were to be temporary? Ian
More to do with Iranian theocracy aligning with moslem brotherhood organizations (Hamas, PIL, SMB) who exist to a) destroy Isreal AND b) undermine Sunni gulf states (by supporting Salafism). Which is why Moslem Brotherhood is banned in gulf states and should be banned in UK, if we had any sense at all. But it also turns out that Riyadh also does not lose financially! It’s win win for them.
I'm on board with this. My macro has them as the biggest winner in the GCC, with Qatar and UAE as the biggest losers. Qatar because I believe the US is going to leverage natural gas (see my natty greenback thesis) through Henry hub. The second biggest losers are Europe and East Asia, who will now pay the mafia don in the US for protection and energy access, directly from the US.
But back to the KSA their biggest advantage is that oil is still important globally, and Saudi is basically still good at any price point.
The Saudis, the Russians, the people doing insider trading, etc, all benefiting from the war- looks like the only people not benefiting are the people paying for it, the American people.
Ah, but the American people could benefit if this war speeds up the transition to renewable energies. This is especially as the price of solar as well as batteries is declining in most years. No doubt President Pea-Brain didn’t intend this, but well we all know about the law of unintended consequences.
That would be great- in general one could say that about the whole presidency though- that perhaps it will spur us to no longer take for granted our democracy and the services our government provides- like the post office, the CDC, clean air and water through EPA regulations, etc.- I truly hope that is the case for all of the above including energy- it will all depend on whether we can collectively grasp the reins from this rogue rider before it’s too late
He’d have to abolish the democracy to do the other things. I’d have thought the effects on unemployment and the quality of life generally would be so large that he would not get away with it long term. Ian
but I thought that the Israelis are themselves fairly closely aligned with various princes in that part of the world. So in that case the Israelis, the princes and Trump can work together for their mutual advantage?
Interesting analysis but assumes 1) East-West pipeline can’t be attacked by Iran or Houthi’s won’t attack tankers in the Red Sea 2) There is no risk that running below production capacity damages long term production 3) Saudi sees little risk in Iran hitting non-oil infrastructure eg desalination plants 4) Longer term instability doesn’t incentivise long term switching away from Gulf oil / products.
From a narrow, financial perspective it may well be so. There is obviously more than a financial perspective to the war. An extended war increases the risk for Saudi Arabia, and all Gulf emirates, that Iran could get through with one or the other rocket, or drone, and cause severe damage on everything within reach. As the 4000 km-rocket towards Diego Garcia demonstrated, Iran may still have hidden capabilities. So far they have spared desalination plants and other possible targets.
This is not quite accurate, with all due respect. Saudi Arabia will still benefit from the rise in oil prices even if it exports fewer barrels. However, the negative side is that GDP could shrink significantly, because real GDP is affected by the volume of production rather than the price, and that is what matters most for the Saudi economy. This has become even more important since Saudi Arabia began relying more on the bond market.
A decline in GDP would raise the debt to GDP ratio, which in turn would increase borrowing costs at a time when the country relies heavily on debt financing. If you combine the benefit of higher oil prices with the negative effects of the war, such as lower petrochemical exports, weaker tourism, higher defense spending, increased risk premiums, and a possible impact on foreign direct investment, the overall negative effect of the current situation appears larger. So, there is no way the WSJ article is accurate.
Doesn’t this depend on how the Saudi government spends the revenue it receives from exports of the oil? Isn’t there room for some movement on this, even if it were to be temporary? Ian
we need a conversation with prof boldrin
Yeah. But. This is temporary. Unless it’s not. While the Houthi have been warned they may attack Red Sea again. And not good for the tourist economy
I think the primary driver is You kicked over the hornets 🐝 nest in our backyard now kill all the hornets. 🐝
More to do with Iranian theocracy aligning with moslem brotherhood organizations (Hamas, PIL, SMB) who exist to a) destroy Isreal AND b) undermine Sunni gulf states (by supporting Salafism). Which is why Moslem Brotherhood is banned in gulf states and should be banned in UK, if we had any sense at all. But it also turns out that Riyadh also does not lose financially! It’s win win for them.
And now deduct the costs of war…
I'm on board with this. My macro has them as the biggest winner in the GCC, with Qatar and UAE as the biggest losers. Qatar because I believe the US is going to leverage natural gas (see my natty greenback thesis) through Henry hub. The second biggest losers are Europe and East Asia, who will now pay the mafia don in the US for protection and energy access, directly from the US.
But back to the KSA their biggest advantage is that oil is still important globally, and Saudi is basically still good at any price point.
The Saudis, the Russians, the people doing insider trading, etc, all benefiting from the war- looks like the only people not benefiting are the people paying for it, the American people.
Ah, but the American people could benefit if this war speeds up the transition to renewable energies. This is especially as the price of solar as well as batteries is declining in most years. No doubt President Pea-Brain didn’t intend this, but well we all know about the law of unintended consequences.
That would be great- in general one could say that about the whole presidency though- that perhaps it will spur us to no longer take for granted our democracy and the services our government provides- like the post office, the CDC, clean air and water through EPA regulations, etc.- I truly hope that is the case for all of the above including energy- it will all depend on whether we can collectively grasp the reins from this rogue rider before it’s too late
He’d have to abolish the democracy to do the other things. I’d have thought the effects on unemployment and the quality of life generally would be so large that he would not get away with it long term. Ian
religion and money have always been the ‘best’ rationale’s for war…. humans have excelled at war + killing since the beginning of recorded history….
This is literally one dimensional thinking. Would that war was that simple
but I thought that the Israelis are themselves fairly closely aligned with various princes in that part of the world. So in that case the Israelis, the princes and Trump can work together for their mutual advantage?