The Scariest News Story of 2016

Arab Spring Yemen

This is what the Arab Spring looked like in Yemen, four years ago, when its people lost all hope. This is what Saudi Arabia, with diminishing prospects of success, is trying desperately to avoid. (Wikipedia Photo)

Correct. The scariest news story of 2016 is already in. Saudi Arabia is starting to come apart, and when its unscheduled rapid disassembly is a little farther along, the Industrial Age will come to an end.

[TROLL: “Don’t you ever get tired of making predictions that never come true? You said exactly the same thing a year ago. And the year before that.” Actually, dear trolls, what you find here are not exactly predictions, rather they are analyses of trends and the likely outcomes of those trends. But even if you insist they are predictions, the fact is that virtually all of them are in the process of “coming true” — it’s just that people who have the historical horizons of a fruit fly assume that anything that doesn’t happen while they’re looking at it is never going to happen, and never happened before. In medicine that’s called amnesia.]

But back to Saudi Arabia, where the forces of disassembly have been in play for decades.  

It has been only eight decades since the country as we know it — a vast desert sparsely populated by nomadic tribes — was assembled as one kingdom under Ibn Saud, whose descendants still rule there. Six years later, in 1938, Standard Oil of California found oil under the sand. Found, as it turned out, that nearly 20% of all the oil on the planet was under Saudi Arabia.

Made wealthy beyond imagination, the House of Saud has been smart enough to bind together its hard-won alliance of fractious tribes, sects, clans and warlords with lavish bribes, otherwise known as subsidies. For years, Saudis have been filling their tanks with gasoline for a little over 60 cents a gallon. The government paid the difference between that and the cost of production. Similar subsidies kept the costs of electricity and water abnormally low, and the population unnaturally quiet under the lash of despotic rule, harsh justice and misogynistic customs.

Only three things could bring trouble to this paradise: the oil could run out; the price of oil could crash; or a burgeoning population could suck up so much cheap energy that it reduced the amount available for export, thus reducing the revenues needed to pay for all those subsidies.

The Saudis appear to have hit the negative trifecta. Despite nearly impenetrable secrecy and pervasive deception, it has become apparent that the Saudi oil fields have peaked (at a hair over 10 million barrels per day) and are beginning a slow but irreversible decline. Rapidly increasing domestic consumption of oil, now over three million bpd, is eating into the amount available for export. And the crash of oil prices during the past 18 months has placed an appalling drain on the Saudis’ cash reserves, which are huge but not infinite. The current Saudi annual deficit — the largest in its history —  is estimated by the International Monetary Fund to be $140 billion. At that burn rate, their formidable reserves would be exhausted in less than five years.

On Monday, the kingdom announced a wide array of “reforms” to stem the bleeding, including 50% higher prices for gasoline, electricity and water, and higher taxes. When such “reforms” have been attempted in the past, by the Saudis and by other petro-states with extravagant subsidies, the immediate result has been public protest, unrest, and a quick restoration of benefits. With this in mind, the Saudis have tried to increase prices on the richest first, but have also made it clear that more pain is on the way.

It seems clear that there is no road back to normal open to the Saudis. Even a sudden return of oil prices to their previous highs would not solve the problem of the depleted fields and growing domestic demand. In any case, the people of Saudi Arabia, already restive [SEE “The Worst News Story of 2015” and “The Worst News Story of 2015 Just Got Worse”] are unlikely to wait very long to see how these long term trends play out. And to the extent they destabilize Saudi Arabia, they destabilize the world.   


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6 Responses to The Scariest News Story of 2016

  1. Tom says:

    Ka-boom! The whole oil empire is collapsing into a sinkhole of its own making. Through setting up the global economy and running it on energy other than human endeavor (with maybe some other animal help, ala the Amish) – this “short cut” to “wealth” was pure FICTION from its inception, and the whole world economy a DELUSION of the highest order.

    Where did we think we were going in such a hurry? Like lemmings, we raced for the cliff – which is now clearly on the horizon.

    Thanks for the update and fine analysis Mr. Lewis. Unfortunately for us all, you may be proven correct all too soon.

    These ARE the “good ol’ days” – so enjoy it all while it lasts. All the best to everyone into the New Year. May we hold off our demise as long as possible.


  2. While scary, I’m not sure it’s the scariest story possible for 2016. Turkey could devolve to civil war, mother Russia could roll tanks into Turkey to control the mayhem and then NATO could fire a few Tactical Nukes at Ruskie Tank Columns to prevent the “Invasion” of Turkey. That’s a pretty scary scenario.

    Here’s another Scary one. Liquidity Lockup in the Junk Bond Market could migrate to the Sovereign Bond Market, overnight lending between the TBTF Banks collapses because everybody’s Tier 1 Capital is impaired and ATMs globally shut down, along with everybody’s Credit and Debit cards, and no letters of Credit are available for shippers.

    Another scary one is a huge Mudslide could slide down from the Rocky Mountains and cover Los Angeles in 10 feet of mud….

    No shortage of scary stories possible for 2016.


  3. Allan Rowley says:

    The Saudi’s have been financing terrorism for decades and building 1000’s mosques in the Western countries as part of their global Jihad. Time is up, and most people are opening their eyes.

  4. Denis Frith says:

    The stark reality (not what people think) is that the technological systems of industrialized civilization are irreversibly using up the vast array of natural material resources, including oil, and producing irrevocable material wastes in their limited lifetimes. Which symptoms of this malaise will hit hardest in the future and when is open to speculation by those who have some understanding of this reality. Climate disruption and ocean acidification and warming is likely to rival those mentioned in the article because it is a global issue.

  5. Apneaman says:

    Nimr al-Nimr execution: Former Iraq PM al-Maliki says death will ‘topple Saudi regime’
    Elsewhere, demonstrators carrying pictures of the Shi’ite cleric were involved in a clash with police in the Bahraini village of Abu-Saiba

  6. JungleJim says:

    It seems King Abdallah Bin Abdul Aziz has been consulting with Victoria Nuland.