Time to Tell the Saudis to Drink Their Oil

By John Kiriakou, Reader Supported News

17 January 16

audi king Salman bin Abd al-Aziz has miscalculated badly since taking the throne, miring his country in an unwinnable civil war in Yemen, angering his own Shia Muslim minority by cracking down on dissent and executing one of its leaders, and breaking diplomatic relations with Iran. With historically low oil prices and a massive deficit, and with Middle East watchers grumbling that the country is actually being run by the king’s untested and inexperienced 30-year-old son, Muhammad bin Salman, the Saudis must get their act together soon or they risk further destabilizing the entire region. And if American diplomatic leadership was ever needed, it is now.

Muhammad bin Salman’s growing influence over the day-to-day running of defense and oil policy is even creating tension within the royal family. Just last month, several princes suggested to the British press that the king step down and take his son with him. The country’s policies since Salman assumed the throne have been impulsive, like severing diplomatic relations with Iran, and interventionist, like invading Yemen.

Salman’s miscalculations have called into question his ability to lead, and may presage a broader conflict, as the governments of Kuwait and the United Arab Emirates have had to commit troops to Yemen to relieve the burden on Saudi ground forces. This has had no effect on the fighting, however, as the Shia Muslim Houthi rebels have strengthened their positions in Yemen’s north while al-Qaeda continues to operate unfettered in the south. The Houthis even launched a SCUD missile near a Saudi airbase in October. A second missile was intercepted by the Saudi military.

Riyadh’s decision to execute 47 people on January 2, the largest mass execution in Saudi Arabia in 35 years, has further exacerbated an already shaky balance with Shias in the region. The execution of Nimr al-Nimr in particular, an outspoken critic of the king who rallied the Shia minority, has further inflamed tensions.

Relations with Iran are particularly bad. Immediately following Nimr’s execution, Iranians sacked and burned the Saudi embassy in Tehran. The Saudis responded by severing diplomatic relations with Iran. Bahrain, Kuwait, and Sudan followed, and the United Arab Emirates downgraded relations with Tehran. But the devolution of Saudi-Iranian relations was not just because of the execution. The Saudis initially strongly and publicly opposed the Iran nuclear accord and have financed fundamentalist Sunni groups in Syria fighting the Iran-backed Syrian government. Some of those groups are aligned with al-Qaeda there.

Meanwhile, the State Department has remained mute on Saudi policy, other than to congratulate the Saudis on assuming leadership, ironically, of the United Nations Human Rights Council. And this was after the Saudis sentenced a 17-year-old to death by crucifixion because he participated in anti-royal demonstrations, after a Saudi blogger was imprisoned for 10 years and given 1,000 lashes because he questioned the role of religion in the kingdom, and after the wife of a prominent dissident was arrested because she, well, was a dissident’s wife.

The Obama administration has not had a single foreign policy success in the Middle East over the past seven years besides the Iran nuclear deal. It cannot allow Saudi intransigence to interfere, especially in an election year. There is still time for the Saudi government to close Pandora’s Box. But the only way to achieve stability in the Middle East is for Washington to draw its own proverbial line in the sand. It must work with its allies in the region to convince the Saudis to end the Yemen debacle, respect its own citizens, and work with Iran. Otherwise, the future holds only war and economic disaster.

If the Saudis don’t want to play ball and make nice with their own people and their neighbors, Washington should reassess the relationship. Truth be told, Saudi Arabia is not a reliable friend. Questions about Saudi involvement in the September 11 attacks have never been answered. The Saudis oppose peace with Israel. They oppose peace with Iran. With oil prices as low as they are, and as alternative energies are finally being developed in the United States, maybe it’s time to tell the Saudis to drink their oil.

John Kiriakou is an associate fellow with the Institute for Policy Studies. He is a former CIA counterterrorism officer and a former senior investigator with the Senate Foreign Relations Committee.

Reader Supported News is the Publication of Origin for this work. Permission to republish is freely granted with credit and a link back to Reader Supported News.

Rahm Emanuel Is Trying to Pay Wall Street Banks Even More for Chicago's Bad Financial Deals

By Saqib Bhatti, In These Times

17 January 16

n an unprecedented move on Wednesday, the Chicago City Council rebuked Mayor Rahm Emanuel’s plan to voluntarily pay banks $106 million in penalties to terminate the city’s remaining interest rate swap agreements. In another unprecedented move, I attempted to explain to my mother what had happened.

I told her, in a mix of English and our native Urdu, that the city had entered into these bad deals that had cost taxpayers millions of dollars, and that a group of us have been calling on the mayor to sue the banks to get the money back. I also told her that, instead of suing the banks, the mayor was trying to pay them all of the future payments for the next 15 years right now in order to get out of the deals.

My mother was shocked. “So instead of paying what he would over the next 15 years, he’s just paying them now?” she asked. I nodded. “That’s just more money for the banks,” she replied. “Why would he do that?”

Emanuel claims that voluntarily paying the banks would have helped the city reduce risk. However, the biggest risk with these swaps is that if the city is forced to terminate them in the future, it could be forced to pay up to $106 million in penalties. By voluntarily paying those penalties now, the city wouldn’t have reduced risk; it would have realized it.

In a press conference on Tuesday, Alderman Carlos Rosa said, “It’s like claiming that you’ve lowered the risk of your car getting stolen tomorrow by handing your car keys to a thief today.”

When Chicago’s credit rating was downgraded to junk last spring, that triggered termination clauses on several of the city’s interest rate swaps. Chicago had to pay approximately $185 million in termination penalties at the time. That was on top of the $537 million in payments the city had already made on the predatory swaps up to that point.

But the city has additional swaps that have not been triggered. Rather than fighting those deals, the mayor is now trying to voluntarily terminate them by “paying the entire ransom,” as Alderman Scott Waguespack described it.

Payments for swap termination penalties were included in a broader $2.6 billion borrowing package that Emanuel sent the city council for authorization. So under his plan, the city would have borrowed money (that it would have had to repay with high interest rates due to the city’s low credit rating) to pay these penalties to the banks.

Members of the Progressive Caucus of the Chicago City Council challenged the deal and got the authorization for the swap penalties stripped out of the broader package. This was a big win for community leaders who have beenchallenging the deals for years.

However, this was just a first step. In order to get out of these deals without penalties and recover taxpayer losses, Chicago should also take legal action against the banks that marketed and sold the toxic swaps to the city. Cities like Philadelphia and Houston have sued banks for illegally manipulating the interest rates on which their swaps were based. Many of Chicago’s swaps were also based on those same rates that the banks have admitted to rigging.Other cities, like Reno, Modesto, and Pittsburg, CA, have filed claims against banks for misrepresenting risks associated with predatory financial deals.

The mayor should also use Chicago’s leverage as a customer of Wall Street to force the banks to renegotiate these deals and waive termination penalties. As Carrie Sloan and I wrote in our report about Chicago’s finances last year, “Chicago controls $78 billion of potential financial business. This is $78 billion that Wall Street would like to get its hands on, so it gives Chicago a tremendous amount of bargaining power over Wall Street firms.” Last spring, we argued that Emanuel could launch a debt strike against the banks that hold the city’s swaps and simply refuse to make any more swap payments until they agree to renegotiate. That still holds true today.

Already the City of Chicago and Chicago Public Schools together have paid banks more than $1.1 billion for swap deals. With the city and school district both facing record budget crises, it is high time for city officials to do everything in their power to stop banks from raiding the city’s coffers. Chicagoans’ taxpayer dollars should go toward providing residents with vital services, not—in the words of my mother—“more money for the banks.”