The Fed goes sniff­ing for bub­bles

Bloomberg Businessweek (North America) - - Contents -

Smith says. “They don’t stop and think, and then they’re sur­prised when peo­ple have a neg­a­tive re­ac­tion.”

Saudi of­fi­cials say the ex­e­cu­tions were meant to con­vince or­di­nary cit­i­zens of the gov­ern­ment’s re­solve to fight ter­ror­ism. They’re “an­noyed at the level of in­ter­na­tional in­ter­est in the mat­ter,” says Faisal bin Farhan Al Saud, chair­man of Shamal In­vest­ment and a mem­ber of the royal fam­ily. “They ex­pected a re­ac­tion from Iran, prob­a­bly in the sense of blus­tery speeches as usual, but I don’t think they were in­ten­tion­ally send­ing a mes­sage to Iran. I don’t think they nec­es­sar­ily ex­pected a move such as the storm­ing of the em­bassy.”

The at­tack raises ques­tions as to whether Iran is ready to re­join the global econ­omy af­ter years of sanc­tions; it also strength­ens the feel­ing among the Saudis that they’re un­der siege. “Sal­man views him­self as a wartime king,” says Robert Jor­dan, U.S. am­bas­sador to the coun­try from 2001 to 2003. The Saudis also feel aban­doned by the Obama ad­min­is­tra­tion. “There is a real sense of en­cir­clement they’re feel­ing,” he says. “They are bit­ter and frus­trated at the U.S. for walk­ing away and seem to be lash­ing out.”

Saudi anx­i­ety about the U.S. be­gan when Amer­i­can for­eign pol­icy at­tempted its pivot to Asia; that was ag­gra­vated by the 2011 fall of Egyp­tian Pres­i­dent Hosni Mubarak, whom the U.S. had sup­ported for decades. Con­ster­na­tion grew af­ter Obama drew a red line over As­sad’s al­leged use of chem­i­cal weapons, then failed to fol­low through on the threat. “It was per­ceived as proof that the word of the United States is no longer of value,” Smith says.

For all the talk of aban­don­ment, Saudi Ara­bia re­mains by far the U.S.’S top weapons cus­tomer. Sales have ramped up sig­nif­i­cantly un­der Obama, says Wil­liam Har­tung, di­rec­tor of the Arms & Se­cu­rity Project at the Cen­ter for In­ter­na­tional Pol­icy. From Oc­to­ber 2010 through 2015, the U.S. has ap­proved sales of $111.3 bil­lion of arms to Saudi Ara­bia, in­clud­ing $29 bil­lion for 84 F-15 war­planes—more than three times the arms sales ap­proved to the U. S.’s sec­ond-big­gest cus­tomer, South Korea.

A lot of that fire­power is be­ing used in Ye­men. The 10-month bomb­ing cam­paign against the Iran-backed Shia rebels, the Houthis, has been sloppy. The UN es­ti­mates that 2,600 Ye­men civil­ians were killed from March to Oc­to­ber, in­clud­ing 1,600 in Saudiled airstrikes. To pay for the war, the Saudis have been dip­ping into shrink­ing for­eign cur­rency re­serves. “The only thing it ac­com­plished is to cre­ate a ma­jor hu­man­i­tar­ian cri­sis,” Har­tung says. The air cam­paign has been led by the king’s 30-year- old son, Mo­ham­mad bin Sal­man, the youngest de­fense min­is­ter in the world. “They should be wor­ried about ISIS, but in­stead they’re spend­ing all their blood and trea­sure in Ye­men as some kind of anti-ira­nian mea­sure,” Har­tung says. “And it’s a dis­as­ter.”

The Saudis are also en­gaged in an oil war— one in which they’re strug­gling to bal­ance con­tin­ued pro­duc­tion and fall­ing prices. Iran says it will sell an ex­tra mil­lion bar­rels of oil a day by midyear, in­creas­ing cur­rent out­put by more than a third. There’s so much crude for sale that even rash ac­tions by two of the world’s big­gest sup­pli­ers don’t trans­late into higher prices— which isn’t good for the trea­suries of Tehran and Riyadh. As Iran pre­pares to reen­ter the mar­ket, the Saudis are offering huge dis­counts to cus­tomers in Europe and Asia in hopes of keep­ing them from buy­ing Ira­nian oil.

Al­though Saudi Ara­bia re­mains the world’s largest oil pro­ducer and can get oil out of the ground more cheaply than Iran can, in some ways Iran is bet­ter po­si­tioned to weather low prices. Sanc­tions, which may end in March, have forced the Ira­ni­ans to live with­out oil and di­ver­sify their econ­omy, whereas oil ac­counts for 80 per­cent of Saudi Ara­bia’s rev­enue. Ac­cord­ing to In­ter­na­tional Mon­e­tary Fund es­ti­mates, Iran can bal­ance its bud­get with crude at $70 a bar­rel, while the Saudis need $95. Omi­nously, the IMF predicts that if the Saudis don’t lower spend­ing, and if oil stays at $50 a bar­rel, they’ll burn through their for­eign cur­rency re­serves by 2020. Be­ing a wartime king is ex­pen­sive. �Matthew Philips, with Vi­vian Nereim

“They should be wor­ried about ISIS, but in­stead they’re spend­ing all their blood and trea­sure in Ye­men as some kind of anti-ira­nian mea­sure.” —Wil­liam Har­tung, Cen­ter for In­ter­na­tional Pol­icy

The bot­tom line Saudi Ara­bia is bat­tling rebels in Ye­men, spar­ring with the Ira­ni­ans, and try­ing to fix its bud­get deficit.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.