Saudi Arabia’s Holdings Increase in US Treasuries
In September 2023, Saudi Arabia’s holdings of US Treasuries experienced a significant increase, reaching $117.1 billion.
This marked an increase of $5.1 billion from the previous month, the highest in nine months.
As a result, the Kingdom climbed to 17th place among the largest holders of US Treasuries during that month.
Saudi Investment in US Treasuries
Over the past three years, Saudi Arabia’s foreign ownership of US bonds has grown substantially. By 2023, its holdings amounted to approximately $177 billion, an 81% increase from 2016.
These treasuries serve as a reserve asset in many foreign creditors’ portfolios.
This growth in Saudi holdings is noteworthy, particularly in the context of shifting global economic dynamics, such as the US-China economic tensions and internal economic uncertainties in the US.
Significance of US Debt
The US government’s debt reached its peak at over $22 trillion, more than 100% of the GDP, under the Trump administration.
This was primarily due to heavy tax cuts stimulating economic growth, which historically has been bolstered by deficits in the public account balance.
Notably, the yield curve of US treasuries dipped in 2019, indicating potential economic downturns, similar to those preceding the last financial crisis.
Historical Context
The US has been a dominant economic power since the early 20th century, enabling it to sell its debt stocks confidently. Significant increases in US debt were observed during the 2008 financial crisis and the New Deal in the 1930s.
The high levels of public spending and military operations have historically contributed to the rise in national debt.
Challenges, Global Perspectives
Current global economic conditions pose new challenges for US debt. The trust in international markets, including confidence in US bonds, has been at historical lows.
The increasing cost of debt interests is becoming a significant burden, even outpacing yearly military spending.
Role of Saudi Arabia in US Treasuries Market
Counterbalancing Global Influences
Saudi Arabia’s investment in US debt serves as a counterbalance in the global market, potentially reducing the influence of other major actors like China.
The Kingdom has been a longstanding ally of the US, and its increased investment in US treasuries reflects this partnership.
Strategic Alliance and Economic Interests
The alliance between the US and Saudi Arabia is multifaceted, encompassing regional geopolitical interests and financial investments.
For Saudi Arabia, this relationship ensures military protection and stability in oil prices, while for the US, it secures a reliable partner in the Middle East and a significant investor in its market.
Future Prospects
The ongoing cooperation between the US and Saudi Arabia in economic domains, particularly in the context of US treasuries, is expected to evolve. While oil has been a traditional link between the two nations, the US’s move towards energy independence may shift the dynamics of this relationship.
However, the mutual need for economic and financial stability is likely to continue driving collaboration between Riyadh and Washington.
In summary, Saudi Arabia’s increased investment in US Treasuries reflects its strategic alignment with the United States amidst changing global economic scenarios.
This development holds significance for both countries, offering economic stability for the US and reinforcing Saudi Arabia’s role as a key player in global financial markets.
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