Arab Spring 2?

Saudi Arabia has announced it is going to start issuing bonds to shore up government finances. As is well known the dramatic drop in oil prices is largely due to Saudi Arabia's attempts to drive new producers such as U.S. Shale and Iran (their sworn enemy) out of the market. Unfortunately such is the largesse of the Saudi government's attempts to buy loyalty from a restive population that their budget only balances when oil is at $105 a barrel. It is currently around $50.

The problem is if they cut production and let prices rise, then that incentivises the higher cost producers such as shale back into the market. Estimates vary but it seems that shale is probably economic at around $60-70 a barrel, and in some cases lower. This means effectively the oil price is not going to go back to $105 in a hurry as higher prices will simply lead to increased production from non-OPEC suppliers. And that's not allowing for Russia which is desperate for revenues and will crank up supply at the drop of a hat.

To make things worse, solar is becoming more and more economically competitive and advancesat companies such as The Solar Cloth Company (www.thesolarclothcompany.com) mean that it is no longer necessary to have big, ugly, heavy glass panels on strengthened roofs, but effectively solar can be rolled out on almost any surface and simply stapled down. 

Meantime the Saudis have gone through $65bn in reserves in a year and have about $675bn left. Just over 10 years. After that they're totally screwed.

They simply have to reduce spending. Which of course may lead to domestic upheaval and another "Arab spring" style rebellion.

Watch this space. And avoid the bonds like the plague.