What is the Probability of Saudi Arabia Pulling Out of U.S. Assets?
The government of Saudi Arabia is a major foreign investor in the United States, especially in U.S. sovereign debt. They have been buying U.S. since their oil boom really took off. For example, in 1974, Saudi Arabian Monetary Agency (SAMA) purchased US$ 600 million worth of Federal National Mortgage Association (Fannie Mae) debentures through the Federal Reserve Bank of New York. SAMA also participated in many bond deals with U.S. corporations over the decades. Dumping Treasuries en masse, or in periodic chunks, would cause destabilization in financial markets, but what is the probability of this occurring? Saudi Arabia’s biggest concern is the freezing of assets, a legitimate concern held by many foreign public institutional investors. A Libya, Iran or even Russia style of freezing of assets would have a negative impact for the Saudi Arabian economy. Typically asset freezes are used as political weapons in response to international crises, like the Libyan revolution (Libyan Investment Authority’s assets were frozen) or during the 1979 Iranian hostage crisis, in which U.S. President Jimmy Carter issued a declaration in November of that year. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]
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