agreed. and while the cost of Saudi production is cheap, running the Saudi state is not. In the US, a sustained low oil price leads to a few bankruptcies. In Saudi, it will lead to political revolution.
Without the need for holding dollars, rest of the world pulls the plug on the American financial system.
I do wonder what percentage, very roughly, of the money supply that is, and what the actual consequences of selling that would be. Anyone have some rough estimates or places to look?
The best argument for low oil prices crashing the US economy would be in any changes to US debt interest rates. While this would certainly change a lot about US politics and finances, one could not count on continuing to borrow indefinitely at sub-inflation levels, America could almost certainly pay it off if it found the will to do so. The fact that America has a large and diverse non-oil economy that would be strengthened by dropping energy prices is certainly a factor.
KSA meanwhile is a rentier state, with 67% of the budget coming from oil sales. Their non-oil economy is badly underdeveloped, and they depend almost entirely on oil money to keep their population fed, occupied, and suppressed. You’ll notice that I said “occupied”, since at a first glance the Saudi economy doesn’t actually include Saudis; 2/3rds of those employed in KSA aren’t Saudi (90% if you exclude oil), and only 30-40% of working age Saudi’s in KSA either have or want a job.
If the oil money were cut off from KSA, the lifetime of that regime would be measured in hours.
Are you sure about that ? both Putin and Xi would jump to make a deal for future oil exports in exchange for meeting Saudi social / security needs.
> America has a large and diverse non-oil economy
So does India, China <-- not superpower or depend heavily of foreign borrowing.
Pulling the plug on the dollar would materially make Americans poorer, independent analysts have put 50% of the value of the dollar arising from WRC status.
Americans can't handle that level of lifestyle change, without it being turned into a revolution.
Xi is different, but its a big question whether the Saudis would agree to their usually awful terms.
Xi maybe, but that would be a lot of money for future benefits; I doubt China can afford it.
Putin is aligned with Iran, Saudi’s enemy, and would also be in a lot of trouble in a hypothetical collapse in oil prices. He’d be in no place to help.
Also, the Russian economy is actually kind of small; Italy would actually be better positioned financially to bail out KSA than Russia.
> Americans can’t handle that level of lifestyle change without it being turned into a revolution.
Debatable. But between “My lifetime earnings have been halved” and “I can’t get food tomorrow”, I’ll tell you which one will trigger a revolution faster.
Another interesting tidbit: when Saudi allowed women to drive, oil was in another mini-"bust" cycle. A half-measure to stave off larger social change.