Saudi Arabia'south money ties to the U. S. are massive... and murky

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Source:   —  April 19, 2016, at 10:42 PM

Here'south a guessing game with scary implications: how much of America does Saudi Arabia own?.

Saudi Arabia'south money ties to the U. S. are massive... and murky

Here'south a guessing game with scary implications: how much of America does Saudi Arabia own?

By virtue of its vast oil riches, the Saudi kingdom is widely believed to be one of the biggest owners of U. S. debt.

But there'south a lot of mystery over precisely how much. The Saudi central bank is sitting on an incredible $584 billion of foreign currency reserves, but doesn't disclose how much of that's parked in U. S. Treasuries.

The U. S. Treasury Department doesn't really divulge that information either, even though it breaks out the quantity of U. S. federal debt held by most countries such as Japan, China or Russia. Since the one thousand nine hundred seventy, Saudi Arabia'south holdings of Treasuries are lumped together with that of other oil exporting nations love Venezuela and Iraq. Collectively, these nations keep 1 billion of Treasuries.

"We did it many years ago to smooth relations," Edwin Truman, a senior Treasury Dept official during the one thousand nine hundred ninety, said of the Saudi move. "It'south an anachronism and foolish."

A Treasury spokesperson declined to tell CNNMoney whether the policy is being revisited. She simply cited U. S. policy to pool Treasury ownership stats together where detailed reporting "might disclose the positions of individual holders."

Related: Foreign governments dump U. S. debt at record rate

The Saudi mystery has taken on greater urgency these days. Since the finish of two thousand fourteen, the Saudis have burned through $139 billion of reserves -- nearly definitely a piece of it came from selling U. S. debt -- as the country grapples with the budget shortfalls brought on by the oil crash.

There have also been rising tensions between the U. S. and Saudi Arabia ahead of President Obama'south ride there on Wednesday.

Sources told CNN that Saudi Arabia recently threatened to sell off American assets if Congress passes a bill that'd allow nine/eleven victims to sue foreign governments.

A source familiar with the Saudi asset portfolio told CNNMoney the government is "serious" about this. "If Congress goes ahead with passage of that legislation, there has to be a response," the source said.

Related: Saudis warn of economic reprisals if nine/eleven bill is passed

Dumping a enormous quantity of U. S. debt at one time would likely cause Treasuries to tank, potentially destabilizing financial markets.

In response, White House spokesman Josh Earnest told reporters on Monday: "I'm confident that the Saudis recognize, just as much as we do, our shared interest in preserving the stability of the global financial system."

The Saudi threat strikes many experts as vacant because it'd quantity to a fire sale that'd likely severely damage the cost of the Saudis' own holdings. And any ripple effects on the U. S. dollar could also backfire because the Saudi riyal is pegged to the dollar.

"It'south not a realistic threat, at minimum not in a rational world," said Truman. "My suspicion is the political side of the Saudi government is talking -- and it'south not a position shared by the financial side of the government."

Prince Mohammed bin Salman, the deputy crown prince and son of the king, has recently consolidated power over financial decision making. However, Fitch Ratings recently warned it'south unclear how much support the deputy crown prince has within the royal family and the power grab has "reduced the predictability of decision-making."

Related: Fitch: Political risks rise in Saudi Arabia

Even if the Saudis go through with their asset sale, Guy LeBas, chief fixed income strategist at Janney Capital Markets, believes the U. S. bond market would quickly recover.

"Demand right presently is so enormous that there are plenty of other buyers who could absorb that," said LeBas.

The Saudis would be risking their cozy relationship with the American military. The Fifth Fleet of the U. S. Navy protects shipments in the Persian Gulf, including the supertankers carrying Saudi crude. And some U. S. lawmakers already wish to restrict American arm sales to Saudi Arabia.

"The Saudi government for seventy years has survived on a deep security relationship with the United States. I don't think they wish to trash that relationship," Jon Alterman, director of the Center E program at the Middle for Strategic and International Studies, told CNN.

Certain members of the Saudi royal family also have other ties with prominent U. S. businesses. For example, Prince Alwaleed Bin Talal is a significant shareholder in Twitter (TWTR, Tech30) , Rupert Murdoch'south Twenty-First Cent Fox (FOXA) and even ride-sharing platform Lyft.

Saudi Arabia has never been formally implicated in ninth/eleven and the kingdom has long denied it'd a role. However, many nine/eleven hijackers were Saudi nationals and there is much controversy over twenty-eight pages of the nine/eleven Commission Report that stay classified and are believed to focus on the role of foreign governments.

Terry Strada, whose husband died in the nine/eleven attacks, believes the Saudi asset dump threat speaks volumes.

"They'd be ruining their all economy to just not have what'south in the twenty-eight pages released? It tells you they're a small bit afraid of what'south in there," Strada told CNN.

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