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What Happens When Saudi Arabia Goes Bankrupt?

Written By Jeff Edwards

Posted December 30, 2015

Recently, the International Monetary Fund said Saudi Arabia would be bankrupt in five years if it didn’t look to diversify its income from a heavy reliance on oil.

The price of a barrel of oil has fallen 45% from 2014 averages and is at an 11-year low.

Saudi Arabia is not the only oil-producing nation to be hit hard by the sharp decline in oil. OPEC countries and even Russia are all scrambling to cope with the new price of oil.

The reasons behind this low price are many, a good number of which I’m not qualified to explain to you, but I can take you down a scary path of when the largest regional counterbalance to Iran goes bankrupt.

Just Raise the Price, You Big Dummy

If possible, I’d like you to read that headline above in your best Fred Sanford voice.

For you millennials, just Google it.

But one can’t help but wonder why Saudi Arabia would risk bankruptcy when it has a strong if not dominant voice in how much oil is actually produced.

More production equals lower prices, and less production equals higher prices.

Supply and demand 101, one might say.

But if you are to believe some analysts, Saudi Arabia is playing the risky long-term game of trying to squeeze American shale oil production out of business.

It has been reported in the past couple of years that due to the rise of fracking, America is actually on a path to become energy independent.

So if you are a major supplier of oil to America, that is bad news.

Saudi Arabia can produce oil much cheaper than fracking, and if you take a look at American fracking companies closing up shop, it seems to already be having an effect.

It’s a dangerous game of chicken, if you ask me, because if America prioritizes more expensive, non-Middle Eastern oil, then Saudi Arabia might take the entire region down with it.

When Saudi Arabia Goes Broke, the Region Burns

As if the region could burn any more than it already is, I’d hate to see it when the Saudi people stop getting their cheap gas and the standard of living to which they have grown accustomed.

Saudi Arabia just announced it has raised the price of domestic petrol by 50% to help offset the growing deficit.

If our own President is to be believed, the hotbed for Islamic radicalism is among a poor and disenfranchised Muslim population.

And now with Iraq in shambles, there is no other regional play to balance the influence of Iran.

So when Saudi Arabia goes broke, the region burns in the manner and choosing of Iran.

It truly is a scary path in that the low price of oil looks to be another domino in a region falling apart.

The question now is: If America has the ability to produce oil and gas to meet its own needs, will we be as inclined to intervene in a region of which the American public has grown wary?

An economist can debate it, international relations experts can opine on it, but the common man is smart enough to realize this is a big deal.

Will the King of Saudi Arabia have to become as brutal as Bashar al-Assad was in Syria to crack down on an angry population?

Could we see the once-bastion of stability in the region become anything but when the bank vault runs empty?

Perhaps this is a reason to bolster American production of oil and gas so we can at once be free of a region we never really seem to understand.