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Here's the latest sign that investors are anxious about Saudi Arabia

Feb 4, 2016, 03:33 IST

A Saudi man poses with Saudi riyal banknotes at a money exchange shop, in Riyadh, Saudi Arabia.Reuters/Faisal Al Nasser

Saudi Arabia's leaders are nervous about the future.

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Low oil prices are forcing Riyadh to introduce unprecedented taxation and austerity measures.

Iran, the country's regional arch-rival, just received as much as $100 billion in sanctions relief.

The Saudi-led coalition in Yemen has stalled in its fight against Iran-allied Houthi rebels who have taken over much of the country.

And for the first time, Riyadh is selling off parts of Saudi Aramco, the country's multi-trillion-dollar state oil concern.

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Riyadh's concerns are well-grounded.

Two charts from Saudi-based Jadwa Investment published on February 2nd suggest a brewing crisis of confidence in what the near term could hold for Saudi Arabia. Investors are dumping their riyals and taking their money out of Saudi banks - even in a time when the consequences of cheap oil haven't been all that crippling for the country, as they have been in neighboring Iraq.

Account holders converted some 80 billion Saudi riyals, or $21 billion, into foreign currency in December of 2015 alone. As Jadwa notes, this indicates that investors are taking their money out of Saudi banks - and probably out of the country entirely.

Jadwa

It's natural that investors would start questioning whether the currency of a largely oil-dependent state can retain its value in a time when oil is expected to remain at under $40 a barrel into the foreseeable future. And there's already international pressure on Saudi Arabia to devalue the riyal in the face of the oil crunch.

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But Saudi Arabia has one of the world's lowest break-even prices for oil production and enough state assets and oil reserves to be able to cushion any immediate crisis. Since Saudi Arabia is so well positioned to weather the price trough, the apparent cash-out could reflect a general uncertainty towards whether Saudi Arabia can successfully navigate its fraught political and economic situation.

Now, it's one thing for investors to want to dump their riyals in a period of low oil prices.

But a second chart from Jadwa shows that total bank deposits in the country are actually contracting 1.1% month-on-month, indicating even deeper anxieties about the durability of the Saudi economy:

Jadwa

Saudi Arabia has some huge challenges ahead. Cheap oil, a rising Iran, instability in Syria and Yemen, and the ever-present threat of sectarian strife or a major ISIS attack mean that Saudi Arabia's leaders - which include a 30-year old defense minister - are facing potential crises on just about every possible front.

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These charts suggest widespread doubt that the kingdom will be able to effectively deal with them all.

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