In the aftermath of Saudi Arabia’s explicit threat to sell off US Treasurys (of which according to the NYT it had some $750 billion) should the US pursue legislation that could hold it liable for the September 11 bombings, Wall Street’s analysts quickly tried to calculate whether Saudi Arabia had anywhere remotely close to that amount of US paper available for liquidation.
As a reminder, despite starting to release data on foreign ownership of Treasuries in 1974, the Treasury’s policy has been to not disclose Saudi holdings, and it has instead grouped them with those of 14 other mostly OPEC nations, including Kuwait, Nigeria and the United Arab Emirates. The group held $281 billion as of February, down from a record of $298.4 billion in July. For more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed monthly breakdown of how much U.S. debt each owns.
A few days after the NYT’s disturbing article on Saudi Treasury liquidation, in hopes of bringing some clarity to this all too important topic, we penned an article titled “Does Saudi Arabia Have $750 Billion In Assets To Sell?” we cited Stone McCarthy which analyzed oil exporter reserve holdings and observed that “at the end of January, Asian oil exporters held $563.6 billion of U.S. securities, with Treasuries and U.S. equities accounting for 92.2% of the total. Treasury holdings totaled $268.2 billion.”
SMRA speculated further, adding that “these figures reflect holdings that Treasury can directly attribute to the Asian oil exporting countries. Regular readers of our updates on the TIC data know that foreign investors often hold securities at custodial institutions in other countries. For example, in February, the five major custodial centers held $1.1 trillion of Treasury securities. It’s possible that Saudi Arabia has holdings of securities parked in custodial accounts, but there’s no way to know that for sure from the TIC data. “
Further, as we ourselves reported, the Saudis were said to have been one of the most aggressive sellers of US-denominated assets in late 2015 and early 2016 to fund the country’s budget deficit as Petrodollar revenues collapsed.
Our conclusion: “in short, the answer is nobody knows for sure, but if the Saudis did have $750 billion several months ago, they probably have far less as of this moment.“
The answer has finally arrived courtesy of a Bloomberg FOIA submission to the US treasury, and our estimate of “far less” Saudi holdings was indeed accurate. As Bloomberg reports, “the stockpile of the world’s biggest oil exporter stood at $116.8 billion as of March.”
The tally ranks Saudi Arabia among the top dozen foreign nations in terms of holdings of U.S. debt, and compares with China’s $1.3 trillion trove, and $1.1 trillion for Japan.
In addition to Saudi Arabia, the US Treasury also broke out the TSY holdings of the various other oil exporting nations as follows:
- UAE, $62.5Bn
- Kuwait, $31.2Bn
- Oman, $15.9Bn
- Iraq, $13.4Bn
- Nigeria, $3.1Bn
- Qatar, $3.7Bn
- Bahrain, $1.2Bn
Alas, as was the case a month ago, the “disclosure” may bring more questions than answers, because Saudi Arabia’s foreign reserves amount to $587 billion, and central banks typically put about two-thirds of their coffers in dollars, according to International Monetary Fund data.
As Bloomberg adds, following the “custody” holdings logic in the above analysis, “some nations accumulate Treasuries in offshore financial centers, meaning the holdings show up under the data of other countries. For example, Belgium, which held $143 billion of U.S. government debt as of February, is home to Chinese custodial accounts, analysts say.” This means that Saudi Arabia may quite possibly have the full amount, it is just listed as being held by another nation – either the UK or Belgium via Euroclear – for TIC holding purposes.
Which begs the question: is the NYT, which reported last month that Saudi officials threatened to sell $750 billion of Treasuries and other assets, wrong, or is it correct? If it is the latter, that leads to two conclusions: either Saudi Arabia is holding hundreds of billions in US paper in custody with some other nation, which means that it is the US Treasury that has no clear idea how much US paper, and thus leverage, Saudi Arabia has, or it means that Saudi’s intentions were misconstrued, and instead of merely selling $750 billion in treasurys, the threat involved all of Saudis’ US-denominated asset holdings, including stocks.
The question of Saudi holdings of Treasuries is gaining importance as the monarchy faces fiscal pressure from the decline in oil prices and costly wars in the Middle East.
In the past year, Saudi Arabia burned through 16% of its foreign-exchange reserves to plug its biggest budget shortfall in a quarter-century, according to data from the kingdom’s central bank. The signs of strain are prompting concern over Saudi Arabia’s potential influence on the world’s largest and most important bond market.
To be sure, if the Saudi threat indeed involved the selling of both TSYs and stocks, that would take financial warfare to an entirely new level, because while the Fed would secretly welcome a selloff in US government paper – ostensibly to give the impression that the US economy is recovering and long-term inflation expectations are rising – selling stocks in political retaliation is a direct threat to the sanctity of a centrally-planned market in which the only remaining indicator of stability is an S&P that remains just a few percent below its all time lows.
This perhaps explains why Obama and the Sept 11 bill sponsors were so quick to promptly table it after the Saudi threats emerged. On the other hand, if and when oil has its next leg lower and the Saudis have to fund their budget deficit, they will have to liquidate even more US reserves, which according to the US Treasury data, means dumping more stocks than bonds, if the FOIA disclosure is indeed accurate.
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