It’s not entirely clear whether Saudi Arabia knew what they were setting in motion when the kingdom moved to deliberately suppress crude prices at the end of 2014.
The idea (of course) was to preserve market share by bankrupting the US shale space and if there were “ancillary benefits” – like say forcing Moscow to give up its support for Bashar al-Assad – well then all the better.
Unfortunately for Riyadh, things didn’t really go as planned. The kingdom’s budget deficit ballooned to 16% of GDP (which, for the uninitiated, is an unmitigated disaster) and this year’s target of 13% will invariably prove to be elusive unless the Saudis decide to either drop the war in Yemen, drop the riyal peg, or (preferably), both.
In any event, the demise of the petrodollar has predictably created a shortage of, well, petrodollars, and it’s starting to show up in the UAE.
“National Bank of Abu Dhabi PJSC, the United Arab Emirates’ largest bank, said there’s a reduced supply of dollars in the country as the region grapples with the impact of oil trading around $30 per barrel and credit downgrades,” Bloomberg reported, earlier today, adding that “banks in the U.A.E., holder of the world’s sixth-largest oil reserves, are facing deteriorating conditions as lower crude leads to a decline in government spending, slower economic growth and falling asset quality.”
“There is a dollar shortage,” PJSC CEO Alex Thursby told reporters in Abu Dhabi on Wednesday. “It’s not a crisis, but it is tightening.”
As Bloomberg goes on to note, “the U.A.E.s’ banking sector has lost 56 billion dirhams ($15.25 billion) in government deposits since September 2014.”
Right. Which doesn’t really come as a surprise. The Saudis have (possibly inadvertently) ushered in a new era for the world’s oil producers. This is “life at $30/barrel” per se.
Get used to it.
via Zero Hedge http://ift.tt/1TnPAIq Tyler Durden