Publications: Notes at the Margin

The Saudi Central Bank of Oil; Preparing for a Biden Presidency (July 20, 2020)


We begin this issue by discussing the idea of Saudi Arabia being a "central bank of oil." Many have written on this concept. All or almost all do not understand the role of central banks, among them Bloomberg's Grant Smith and Javier Blas. Here we elucidate the role of central banks via the work of real experts such as Stanley Fischer, the former vice-chairman of the Federal Reserve. We note that a Saudi central bank of oil will seek to keep prices down today to maximize the country’s long-term wealth from oil sales. Prince Abdulaziz, the Saudi oil minister, seems to understand this. The long-run consequence of such a strategy for other producers and the multinational oil companies is troubling. Those who do not comprehend the role of central banks or the Saudis taking on that role for oil will face significant financial losses or bankruptcy.


We follow the central bank discussion by looking at the coming election. A Financial Times reporter who covers US energy wrote that Biden needs to convince "a broad church of voters to back him," including oil workers in Pennsylvania. The reporter is naive regarding US voting patterns and politics, as are almost all Financial Times correspondents. Responses to the critical question "Is the country headed in the right direction" likely point to a resounding Biden victory without any support from the oil industry. Right now, the election looks to be a referendum on Donald Trump. Absent a miracle, he will lose. His loss could take the entire oil industry with him.


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