Higher Oil Prices Could Threaten Saudi Vision 2030

Authored by Irina Slav via OilPrice.com,

Saudi’s headlines keep rolling in.

Saudi Arabia is deepening its ties with Russia, with billions of investments planned for the future. Saudi Arabia is going to allow women to drive. Saudi Arabia booked a second quarterly GDP contraction in a row, with non-oil revenues particularly worrying. Saudi Arabia is also going ahead with the Aramco listing in the second half of 2017, despite reports of a possible delay.

The Kingdom has certainly been making a lot of headlines recently and so have analysts from various institutions, either praising the effect that the OPEC/Russia oil output cut agreement is having on prices, or warning the cartel and its de facto leader that they should change their strategy.

Now a new warning has come from the global head of sovereign ratings at Fitch, James McCormack.

When countries “kick-start reform programs when oil prices are low, sometimes the enthusiasm wanes when commodity prices move higher. That is potentially a risk here. It will take continued focus on discipline to maintain many of those initiatives with higher oil prices, McCormack told media in Riyadh.

That’s more a reminder than a new threat. There have been rare voices wondering if the Saudis will resist the siren song of higher oil prices and maintain the discipline necessary to really implement the ambitious diversification program, which, is not the first of its kind. There was an older one called Vision 2024, which somehow got shelved amid…. well, higher oil prices.

Judging by the current economic situation in the Kingdom, there is ground for doubts.

The latest GDP figures revealed a 1.03-percent GDP contraction on an annual basis in the second quarter of the year, following a 0.5-percent shrinking in the first quarter of the year. What’s more worrying, however, is that while oil revenues contracted, by 1.8 percent, which was to be expected, non-oil revenues grew only moderately, by 0.6 percent. This clearly means that the Saudi economy has a very long way to go before non-oil industries can offset the revenues that oil generates.

Another worrying sign came earlier this year, when the government in Riyadh decided to roll back some austerity measures concerning the salaries and bonuses of public servants. The decision came on the back of recovering oil prices, when OPEC and Russia decided to extend their production cut agreement. This rollback suggested that the Saudis might find it hard to resist another temptation of the same kind: it’s all too easy for Saudi Arabia to keep going in the rut dug over decades than it is to venture into a new direction and start from scratch.

True, Saudi Arabia has announced renewable power tenders as part of its move away from oil, and just yesterday it struck an arms production deal with Russia, in addition to expanding its global footprint in petrochemicals with billions in investments. But that won’t be enough—it’s only the start. The main work will need the billions expected from Aramco’s IPO. And for this IPO to bring in these billions, crude oil prices need to remain higher.

The situation of Saudi Arabia now is kind of similar to a junkie trying to kick a habit, but needing money to do it – money that can only come from the sale of drugs to other junkies.

Oil is, after all, as Chicago so aptly put it, a hard habit to break. There is the constant temptation of slipping back into the old habit, and too often it proves too strong. One can only hope that the decision-makers in Riyadh are hearing what McCormack, Goldman Sachs’ Lloyd Blankfein and others are saying.

Mapping The World’s Trillion-Dollar Asset-Manager Club

In the late 1700s, it was the start of the battle of stock exchanges: in 1773, the London Stock Exchange was formed, and the New York Stock Exchange was formed just 19 years later.

And while London was a preferred destination for international finance at the time, Visual Capitalist's Jeff Desjardins notes that England also had laws that restricted the formation of new joint-stock companies. The law was repealed in 1825, but by then it was already too late.

In the U.S., exchanges in New York City and Philadelphia took full advantage by dealing in stocks early on. Eventually, for this and a variety of other reasons, the NYSE emerged as the most dominant exchange in the world – helping propel New York and Wall Street to the center of finance.

THE CENTER OF FINANCE

Wall Street, and the U.S. in general, is now synonymous with finance – and most of the world’s largest banks, funds, and investors maintain a presence nearby. The biggest asset management companies, which pool investments into securities such as stocks and bonds on behalf of investors, are no exception to this.

Today’s chart shows all global companies with over $1 trillion in assets under management (AUM).

Courtesy of: Visual Capitalist

Not surprisingly, all but 17.1% of assets managed by this $1 Trillion Club are overseen by companies based in the United States.

Even further, outside of Northern Trust (Chicago), Pimco (Newport Beach), and Capital Group (Los Angeles), the remaining U.S. companies are based in the Northeast specifically – either on Wall Street, or just a short drive away.

THE NEWEST ENTRANT

The newest entrant to the $1 trillion club is Norway’s sovereign wealth fund, which is managed by Norges Bank Investment Management. It’s the world’s largest sovereign wealth fund, and it was “never forecast” to get so big.

The Norwegian fund recently joined France’s Amundi ($1.6 trillion), the UK’s Legal & General ($1.3 trillion), and Japan’s Goverment Pension Investment Fund ($1.2 trillion) as non-U.S. members of this exclusive club.

Are Russia And China Right On North Korea?

Authored by Matthew Jamison via The Strategic Culture Foundation,

With the nuclear standoff between North Korea and the United States having heated up significantly over the summer, it has been the Governments of Russia and China who have sought to be the responsible, mature and wise international parties at the United Nations and throughout the international community.

It has been the brilliant diplomacy of Moscow and Beijing who have been the voices urging restraint, calm and dialogue unlike the insaneridiculous and totally counter-productive rhetoric of the American President Donald Trump and the US Ambassador to the UN Nikki Haley.

The leaders of Russia and China must be given a strong round of applause for trying to avert a nuclear holocaust on the Korean peninsula whilst upholding international law, attempting to avoid a nuclear war and advocating for multi-party dialogue with the resumption of the 6 Party Talks {which have been in abeyance since 2009} and a cooling off period on the Korean peninsula with the suspension of the US-South Korea military exercises. This is the right policy going forward for the welfare, safety and security of the Korean peninsula as well as regional and international peace and stability. The wrong course of action and the wrong policies of handling North Korea and the Kim Jong Un regime have been consistently followed by the Trump administration and its allies on the UN Security Council. 

The American policy of constantly aggravating North Korea with US-South Korea joint military exercises designed to unsettle, disturb and provoke the North is counter-productive and has only increased tensions and the possibility of all out war in Korea which would be a complete disaster and must not be allowed to happen. The American policy of deploying THAAD has also been like a red rag to a bull in North Korea and again only adds to increasing tensions ans the likelihood of armed conflict. While Russia and China have been working with great effort to calm the situation down with the restoration of dialogue, cooperation and stability it has been unfortunately the Governments of the United States and to a certain degree President Trump's ally in British "prime" minister Theresa May who have actually in reality been increasing tensions, escalating the situation, antagonising the North Koreans and not helping to decrease tensions and deescalate the situation. 

To be clear North Korea is also completely in the wrong and it is the prime actor that must stop its nuclear tests and enter into talks. Yet it is very difficult for the North to enter into the 6 Party Talks when the United States will not countenance such talks. One could also mount an argument that the only reason the North Korean regime is behaving this way and seeking nuclear weapons is to preserve its own security as it in all likelihood feels extremely threatened especially in light of what happened with regards to Iraq during 2002-2003 and beyond and Libya after 2003.

The rhetoric of the Trump administration whether it be from the President himself or his Defence Secretary Mattis or UN Ambassador Haley has not been helpful and has been full of hyperbole, no doubt sabre rattling, but still it simply inflames and escalates an already difficult, tense and fragile international and regional security and humanitarian headache.

Imagine if the situation where reversed and it was Mexico on the United States' southern border acting in this way. Do you really think the American Government would want to deal with the fall out on its own door step of a nuclear obliterated Mexico and the tremendous ecological, environmental and human damage that would create. I doubt it very much that the United States would take the same approach to such a situation if the rogue party playing up was right on its own southern border. 

With regards to the role that the United Kingdom Government is playing, hopefully, it is a constructive role with the aim to help reduce tensions and deescalate the nuclear crisis on the Korean Peninsula not increase and exacerbate what is already a very delicate situation. Time alone will tell if the current British "prime" minister Theresa May is fully committed to such a course and is actually exerting (what little influence and leverage) she may have over her new found best friend from January President Trump. Mrs. May made great hay out of her early visit to hold hands with Donald Trump a week after he was sworn in. Let the international community see now the Anglo-American "special relationship" in action with the UK prime minister persuading the American President to change tack.