A Surge in the Cost of Default Protection, Saudi Arabia

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In recent years there’s been a strong relationship between oil prices and the cost of Saudi Arabia credit default protection.  Lower oil prices have consistently been tied to higher default risk.  Today, we’re seeing an entirely different, disturbing picture – oil prices have surged with default risks.  This speaks to rising geopolitical credit risk.

A Surge in the Cost of Default Protection, Saudi Arabia
The cost of insuring Saudi Arabian debt from default is approaching two-year highs, even as oil prices globally are ripping upward.   On our Bloomberg terminal, five-year CDS soared another 20 basis points last week.  On the heels of a destabilizing “anti-corruption” purge in the kingdom, credit risk is on the rise. Increasing tensions with Hezbollah, an Iranian-backed militant group, have compounded investor concerns about rising political risks in the region. The last time the nation’s CDS jumped as much in a single week was in January 2016 at the height of the oil-market crash.  Back then, Brent was $27, compared to $64 last week.  The Kingdom’s debt profile has broadly expanded.  Public debt outstanding in 2014 was down at $44B, today she’s approaching $300B, per Bloomberg data.