Sunday, April 17, 2016

How Likely is It That Saudi Arabia Would Liquidate Its Treasury Securities?

As I reported yesterday, Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001.

The report initially came from the New York Times. The NYT story included this:
Several outside economists are skeptical that the Saudis will follow through, saying that such a sell-off would be difficult to execute and would end up crippling the kingdom’s economy. 
The economists NYT references do not appear to understand the situation correctly. They appear to view the Saudi warning as a threat but the sell-off of the assets as just a threat does not make sense. There are other reasons that a liquidation does make sense.

Saudi Arabia holds some $750 billion in US securities. To be sure, it would be difficult to liquidate over a short period such a sizable amount of securities without putting severe downward pressure on the Treasury securities market. But here is the thing, if the bill does pass and becomes law, it is entirely possible, that as NYT reports, Saudi Arabian assets "could be in danger of being frozen by American courts."

The easiest Saudi assets to freeze would be the Treasury securities.

So if the choice for Saudi Arabia is between having its assets frozen, and then possibly awarded to 9-11 victims and their families, versus liquidating at huge discount prices, liquidation looks like a very sound move from a Saudi perspective.

Note: I am not saying here that Congress shouldn't pass such a bill, I am just looking at it from the perspective of the Saudi government. If the bill becomes law, it would make no sense for the Kingdom to keep its assets in any form that could be easily frozen by US courts, especially since most of the 9-11 attackers were Saudis.



  1. This whole scenario is surreal on a few levels. Sure, KSA could sell these securities in a fire sale but, at that point, I think it is the least of their problems. Anyway, I think this topic deserves the Costanza/popcorn video/graphic.

  2. I wonder what impact a pissing match would have on the Petro Dollar, my understanding is that Saudi Arabia has been an "enforcer" of sorts from time to time when it comes to dollar priced oil barrels.(as opposed to other currencies)

    What if they also decided to start accepting payment for oil in other currencies if things escalated in some kind of "tit for tat" scenario?

  3. Could this start a precedent of some kind? Could Iraq hold the US government responsible for drone strikes? Ukraine for the US government inciting a coup? Not that anyone has any assets to seize in either of those countries.

  4. I don't think Obama would sign any bill holding Saudi Arabia responsible for the 9/11 attacks, nor will the 28 pages of the 9/11 commission report be released, these things are just threats that will be pulled out whenever The Saudi's become uncooperative. Right now the Obama administration is looking for cooperation in Syria, i.e. no Saudi support for al-Nusra affiliated groups that have recently broken the cease-fire.