Saudi Default, Devaluation Odds Spike As Mid-East Careens Into Chaos

Saudi Arabia just doesn’t know when to quit.
The kingdom’s plan to deliberately suppress crude prices in an effort to bankrupt the US shale space and preserve market share has cost Riyadh dearly over the past 12 months. The country’s budget deficit for 2015 ballooned to some 15% of GDP as oil revenue collapsed. For 2016, the deficit is expected to come in at a still elevated 13% of economic output.
The red ink has forced the Saudis to tap the SAMA reserve war chest as well the debt market. In a testament to how dire the situation has become, Riyadh also moved to cut subsidies on everything from fuel to electricity to water in order to buy some budget breathing room. The welfare state overhaul was necessary because the Saudis aren’t keen on i) dropping the riyal peg, or ii) rolling back the defense spending.
As if the situation needed to get still more precarious, Riyadh went out and sparked a sectarian showdown over the weekend byexecuting a prominent Shiite cleric. The Sheikh’s death triggered protests in Iran (among other countries) and before you knew it, the Saudi embassy in Tehran was on fire. That prompted Riyadh to cut diplomatic ties with the Iranians and comments by Saudi Foreign Minister Adel Al-Ahmad Al-Jubeir seem to suggest that the kingdom may be on the verge of taking more steps to intervene militarily in the region in an effort to rollback Iran’s growing influence and stop the Shiite crescent from waxing.

This post was published at Zero Hedge on 01/04/2016.