Bloomberg has reported today that a UAE banker has warned about the tightening liquidity (linked to the Fed. Reserve’s December ’15 rate hike), and the short supply of US Dollars.  Low oil prices have put a significant financial burden upon the oil exporting nations, leading to decreased government revenues which are typically captured by the governments from the profitable portion of oil exports.  Of course, this sort of rhetoric would originate from a country with its currency pegged to the US Dollar.

There are likely to be some unusual financial alliances formed to try and maintain the US Dollar pegs.  These governments stand to lose a great deal in the event that the pegs start to fail.  Indeed, they could face a domino effect as one failing peg would put increased pressure on remaining nations.

It is for this reason that I suspect these pegs will hold out for longer than expected. Still, in the event of a single major market shock, they could topple in fast succession.

Anyone who is holding out for higher oil prices is likely to be shocked also. While it is true that many of these countries remain in OPEC and are aligned in their interests, there are new markets opening up which are not in favor of the existing regime.

Both Russia and Iran are not likely to support Saudi-centric pricing policy in the short-run and divides have been drawn across religious, economic and geopolitical lines.  Furthermore, global demand and thus, consumption, has dropped off a cliff.  Oil may not see full price recovery to its previous high for years.  The best these nations can hope for is improving extraction methods and cutting costs to reduce their outgoings and increase profit margins in the short run.  Even escalating the conflict in Syria seems to be having very little effect on oil prices currently.


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