Saudi Arabia’s Billion-Dollar Gamble: Boom or Bust?

In this episode of Energy Newsbeat – Conversations in Energy, Stuart Turley sits down with Michael McDonnell, founder of MMD Global Advisory, to dive deep into Saudi Arabia’s Vision 2030, the NEOM project challenges, and the broader impact of global trade wars. They explore how Trump’s tariffs are reshaping global finance, Saudi Arabia’s financial future, U.S. energy dominance, and smart investment strategies during times of volatility. Gain insights into ESG’s unexpected benefits to oil and gas, America’s natural resource strategy, and why global investors are turning to the U.S. now more than ever.

Thank you, Michael, for stopping by the podcast! I enjoyed our conversation about the global oil and investment markets. I am looking forward to future articles and topics that use your insights. – Stu.

Please check out Michael’s website here:

https://www.mmdglobaladvisory.com

Topics Covered:

• Saudi Arabia’s economic future and Vision 2030
• The NEOM city project’s risks and realities
• How Trump’s trade policies are reshaping global markets
• Best investment strategies during high volatility
• The surprising upside of ESG on U.S. energy
• America’s shift toward energy independence
• Technology innovations in nuclear and clean energy

 

Stuart Turley [00:00:07] Hello, everybody. Welcome to the Energy Newsbeat podcast. My name’s Stu Turley, president of SIA, the Sandstone Group. I’ll tell you, this is absolutely a critical time in the future of the world. We have the presidential trade wars going on. We have tariffs, but we also want to focus on the global economy and several key leaders out here. And I’ve been able to meet Mike McDonnell. He is the head guy over there at the MMD Global Advisory, and he sent me over of his articles and we’re going to cover that article and the importance of Saudi Arabia what Frompted this was an article in the Wall Street Journal last fall. The big problem for Saudi Arabia is futuristic city and the country doesn’t have enough money. He has a great article on his website. We’re going to talk about that and the importance of Saudi Arabia. Welcome Mike to the podcast.

Michael McDonnell [00:01:03] Hey Stu, it’s a real pleasure. Thanks for having me on.

Stuart Turley [00:01:06] I’ll tell you, I just really enjoyed our last conversation and this article you sent, I, we’re going to make sure the entire article is also posted out on energy news, being so we’re gonna get this out there, but what prompted this thoughts process for you on the importance of the big problem for Saudi Arabia is futuristic city.

Michael McDonnell [00:01:28] Well, just what you were just saying just a moment ago, Stu, just finite resources vis-a-vis infinite ambitions or a real desire to attain pretty lofty goals as envisioned, say, by the Saudi leadership. That sort of prompted me to think about this issue. And it actually brought to mind a little bit of literature to me as well. The Ernest Hemingway character in The about how he went bankrupt. Sort of paused a little bit and he said to him said to the person he was talking to, well, you know, gradually and then suddenly. And just so if you have in a person’s life or in the administration of a company or in the indeed administration of the country, if you have compounding decisions which yield very negative consequences, those can catch up with you. And just, so while Saudi Arabia in this particular example is so richly endowed with hydrocarbons, it is not quite the leading energy producer or oil producer in the world for now that honor falls to us, the United States. But nevertheless, an extremely prominent kind of swing producer in the energy markets in many respects, it only can generate a finite amount of foreign exchange earnings. It only has like any economy, a finite capacity. Capacity, they can certainly be. Managed and developed and utilized, but nevertheless it’s finite. And so for watchers of Saudi Arabia or say global stability, it’s interesting and I guess it’s really incumbent on any one of us who watch how the world is developing to see how well such a significant country like Saudi Arabia manages itself, so to speak.

Stuart Turley [00:03:25] Well, you know, Saudi Arabia with their, you bring up their city that they’re working on and the amount of money that they are, they’re putting out into hydrogen, they are really using their oil and gas as a piggy bank to fund not only their sovereign wealth fund, but they’re big projects that MBS really wants done out and they need a higher price.

Michael McDonnell [00:03:49] And a lot of those projects are definitely worthwhile pursuits, you know, through the kingdom. Their vision 2030 has some very ambitious and again, you know, ultimately beneficial goals that they’ve set out for themselves, namely to increase to the extent that they can, exports that are not so linked to the energy sector. Right. So that’s kind of that’s a challenging effort, but that’s something they want to at least explore. They want to cultivate better and more ample commercial activity in like small and medium-sized enterprises, and despite, say, very conservative religious tradition in Saudi Arabia, they do want to incorporate more women into the workforce in Saudi. So there are a number of different social and economic development goals in their Vision 2030 that they want to finance and put forward. Now, Stu, you mentioned the city, which they call Neom, their planned city. That’s really ambitious, and they want to really develop that from scratch. And they would like that to become sort of a world city, a world capital in many ways. That’s a wellspring for innovation and development in the arts and the sciences and different economic and commercial activities. That’s all well and good, but it’s a very ambitious thing to do, right? The scale of that they at least envisioned is pretty gargantuan. So what’s going to be very interesting to see over the next six months, next year, et cetera, is how they, in essence, Prince Mohammed bin Salman MBS, and with reference to his father, and King’s the leader of the monarchy of Saudi Arabia, how they recast perhaps the ambitions for Neom. And or not and that’s going to be very interesting and that is that’s kind of a risk linchpin in many ways right again the use of resources that they have fungible foreign exchange earnings that they have to be a plume to be deployed in an effective way for that economy in that society and that to rub.

Stuart Turley [00:05:56] One of the things that comes to mind is that in the news cycle today, we’re talking about the Trump tariffs, everybody’s, you know, there’s what 90 countries plus lined up to try to visit with the Trump tariff team and, and everything else. And I, in my opinion, I think that, and we take a look at, you mentioned the United States as a, as the oil leading oil producer in the world. We’ve also really changed how things going there. Cause I got tickled at present from I’m going about 16 different ways. Cause your article opens up the can of worms to go about 900 different ways And one of the big things about the tariff war right now is that it is, it is going to be right sizing the tariffs imposed on the United States, which is a global financial change between China and how everything is doing. The EU and the UK are now having to retool and they’re going to ret tooling and turning all of their manufacturing into weapons of war. And so China, they’re negotiating with China for more steel. And Mike, this week, you can’t buy this kind of entertainment. The, the UK steel plant was bought by China, couldn’t get coking coal. So the UK government is looking at stealing it back and running it by the UK, but they had to buy coal. From china china closed all their coking coal plants and so it actually came from australia and then they put a whole thing so you got this whole this is the most unbelievable time we’ve ever seen. And the Saudi kingdom is actually a solid foot in this, in this environment of sanity. And I did not have this on my bingo card because Chris Wright, our secretary of energy was just there. Perfect timing that the relationship with Saudi Arabia is actually very important. They’re having to really work to control the other OPEC plus members in their production because they really need… $80 to $85 oil just to pay for all of their sovereign wealth fund plans. And the Trump team does not the, the oil and gas industry, the United States, while consumers like lower gas and everywhere, but California because California’s policies is what so high gas prices are high in California because of taxes and then the rest of the country is, is, doing better. But the U.S. Needs at a minimum $60 oil for the Permian, and you need $80 to $85 for the Sovereign Wealth Fund to be able to fund itself and all of their other energy projects. Boy, they’ve got, Saudi Arabia’s got their hands full, and it seems like they look at management by decades, if not multiple decades, and the United States looks at management by the next election cycle.

Michael McDonnell [00:09:09] Well, that’s a lot to do. Yeah, I mean, they’re there as just student as you’re putting it, there are challenges to go all around. And there are definitely public policy challenges here. And there are public policy, challenges that the Saudis have to take up and look squarely in the eye. And that goes really for the rest of the world, too. You know, for, you know, for the kingdom, it’s really a question of effectively household management in terms of what they set out to do. What they can conceivably realize and how they can kind of, to the extent that they have to, how they kind of… Manage their losses, so to speak, in terms of public policy initiatives that might not be wholly viable. That’s going to be really important for them to really consider. And to the extent that they do not, that’s a big risk factor for them. Now, again, the public investment fund in Saudi Arabia has close to a trillion dollars and assets. And Saudi Arabia as the kingdom with its monetary authority managing it’s exchange rate, the real. And that exchange rate and the flow of capital in and out of the country and the foreign exchange reserves or holdings in Saudi Arabia, roughly around 300 plus billion dollars. Right. It’s not insignificant, obviously, but again, you know, very ambitious development goals versus nevertheless a finite resource space or a base of fungible capital should raise questions and requires a reasonable monitor of how things are developing over there.

Stuart Turley [00:10:45] Absolutely. I love your, your, in fact, you’re in brief and your article is very point pointed. So in brief, it’d be important to, for the external investor and lender to do due diligence and Saudi leadership. I like the way you phrased everything in that.

Michael McDonnell [00:11:02] Article. Well, thanks. I appreciate it. I appreciated Stu. I, you know, and I don’t mean to be, I certainly don’t mean to alarmist. Right. I’m just saying, you kind of, you kind of have to watch things. Right? And, and definitely watch for, for improvements and for positive proactive steps, which, which I think can be in the offing, but also again, If you are, if you’re an external lender or if you are an investor, watch for resource constraints, liquidity constraints that can cause problems that can, that can effectively interrupt the realization of the business that you want to see done. So I think it’s the really important thing to consider.

Stuart Turley [00:11:41] What is your gut feeling? I love what you’ve done on this and at MMD Global Advisory. When you take a look at this, what do you feel about?

Michael McDonnell [00:11:50] My gut feeling is, I think that there are going to be adjustment processes that unfold there. Okay. That’s my gut.

Stuart Turley [00:11:59] Adjustment processes. That could be that could be like honey take out the trash or you’re going to

Michael McDonnell [00:12:03] Yeah, that’s kind of like that’s on the honeydew list. But no, I think that they’ll change tack in terms of if they have to, and most likely they probably will have to resize their ambitions for city, for example, their planned city. Right. Because bear in mind, you know, I think, you the I think there’s a certain rationality that that’s gonna that’s going to But again, I, you know, nobody has a crystal ball and, and people, whoever they are, they do the strangest things sometimes. And so that means that you have to sort of monitor the situation and you have, you have to size your own bets and your own commitments accordingly.

Stuart Turley [00:12:42] Now, as we sit here and we go through this, what are your initial thoughts of the trade war with the tariff? Because in the financial world, you got to sit back and take a look at what’s going on and I want to hear what your thoughts are on that. I’m just going to throw it out there for you.

Michael McDonnell [00:12:57] You know, like any investor, last week was a humdinger.

Stuart Turley [00:13:01] Humdinger, I don’t know that that was the word I heard for all my day trade here.

Michael McDonnell [00:13:05] Yeah, a lot of words you probably heard there, Sue. You could listen over here in my living room, you could have heard a lot too. Yeah, the trade, I think that there are going to be accommodations made. With the broad survey of countries with most countries, it’ll be very interesting to see what China does and how it responds to us. That is kind of being taken to another level, say by the Chinese leadership in many respects, but I think there are going to be certain accommodations made among, you know, among the majority of trading partners with the U S because we’re such a substantial market, right? You know, Trump is the president that sort of raised his hand, so to speak. In terms of how the U.S. Has run its post-Second World War political economy vis-a-vis the rest of the world. Now, you know, there were maybe rationales or understandable motivations for having what had been for a long time kind of accepted fact that the United States would be this substantial market to draw in people and to cultivate alliances and friendships with rest of the world. Now, over that 80-year period, there are a lot of foreign policy benefits. And there was, one could argue, some geopolitical stability dividends from that. But nevertheless, that’s had consequences here for the United States, for the US economy, and for US society. So it’s not out of bounds for Donald Trump as the President of the United States to say, let’s recast the trading relationships that we do have. Examine them again. And let’s do so from a perspective of, you know, what is equitable for American society, for American workers, for the American economy, and what can be a positive outcome for everybody. So now it’s interesting, it’s not something, it is not as if the United States is trying to exact some sort of unfair expense or cost on its trading partners. It’s just trying to re-examine what the terms are. In our commercial relationships and how we can make them, again, more of a mutual positive sum outcome for everybody. I don’t think that’s so outrageous to ask. The thing about Trump that’s very interesting is he works and acts with alacrity. I was talking to a friend of mine who is not a U.S.-born person, a foreign person who emigrated from another country, And my friend said, Trump is a businessman, as she put it. And that’s how he sort of comports himself and implements policy. And he essentially does what he says he’s going to do. He’s talked about this. He talked about through the 2024 campaign and he then did it, meaning. He implemented as he was allowed to as president of the United States with his ability to write executive orders. And he did so. So I think it’s going to, I personally think it is going to ultimately work out. It could be bumpy. It can be bumpy and also, and it gets back to what we were saying a little bit earlier, you know, the United states has You know, these institutions in place, which allow an electorate to decide on whether or not they agree with what the guy who is in power is doing. And so if President Trump is not successful in his efforts, then they’re going to feel that in 26 elections and they’ll feel that and the party will feel that at 28. So there are motivations to try to draft something that works and that delivers real benefits for the American people. And so a lot of volatility. Wow. We’ll see how.

Stuart Turley [00:16:42] So as an investor, where are you going to park your money? I mean, if you were just sitting here, because as a global financial marketing, not marketing, but when you take a look at global finance, and that’s what your website’s looking at, where are you gonna park your

Michael McDonnell [00:16:58] Well, a lot of people have been parking their money in gold, for example, the precious metals have been a beneficiary of global investor anxiety over the last year, and there’s no doubt about that. I think as an investor, when things are uncertain, that’s the opportunity. That’s the time for the speculative trader, but he who lives by the sword dies by the meaning how you manage your leverage and your exposure. Now you wrong-sided, you know, nobody’s, you nobody, nobody knows the future. And you have to, if you’re a speculator, you have to control, you have to sort of really think about what your downside is and how, and whether you can accept that and then you can go and try to make some great speculative gains based on how you see inflection points developing. And how you construe motivations and policy steps that maybe others don’t see. And that’s the key to investment windfalls. But exciting times like these, that’s real stuff for speculative traders.

Stuart Turley [00:18:08] You know, one of the fun things that I was able to do is branch out my portfolio and I do not give investment advice. I just want to say that for clarity.

Michael McDonnell [00:18:17] I’d like to add that myself, I’m, you know, MMD Global Advisory is not a registered investment advisor. We don’t deliver actual advice on security purchase or purchaser sales. Exactly. Buh!

Stuart Turley [00:18:29] But this is our disclaimer here. But on the other hand, I do evaluate oil and gas deals as part of my company. And when you take a look at, is it going to be a vertical well versus a horizontal frac well, and the frac wells in the Permian need a higher price than do just normal conventional wells. And so my investment portfolio right now is doing quite well, even at $60 oil. I’m okay. So if you pick and choose individual investments, you can make money. If you are watching how that operator is working or where they’re drilling or their long-term plan, there’s a lot in the oil and gas is because the ESG market. Mike, over the last several years has done a great thing for the oil and gas industry, and that is ESG has really forced the Americans to the American private and public to give money back to their investors and the oil and gas base has been some of the best investments that are out there. So, you know, you sit back and go, ESG was a dirty word now, but it actually did a good thing over the past 15 to 20 years, investors get their money back.

Michael McDonnell [00:19:46] Yeah, well, there you go. A management challenge is met, so to speak. So I guess what I’m saying is ESG impelled some solid and rational decision-making from folks, just as you’re saying, Stu, and the money was reversed or remitted back. And, you know, that difficulty, I guess, was accommodated or met, but, you know, it’s going to be really interesting to see how Trump policies, how this administration’s policies really do ultimately play out over the next, over the next couple of years, even over the, over the span of a year, we’re going through this real volatility with the tariff regime adjustments. But as they say, this too shall pass in some way, shape or form. Kind of like a kidney stone. What’s that? Kind of a kidney-stone. A little bit of a gout that the economy is having. And we have a format that’s in place, more rational or more effective deregulation. We have a much more tax-friendly business environment. And I think…

Stuart Turley [00:20:46] And Saudi Arabia has invested a huge amount into the United States again. And we have Japan, Tokyo gas just bought all the way through from in the Hanesville, which is just on the East side of Texas near. The shipping of the LNG facilities through Louisiana, Tokyo gas just bought mineral rights and everything else. So they own from the mineral, all the molecules all the way out to the L and G port. That’s called energy security. That also called investing in the US so that you can get away from tariffs.

Michael McDonnell [00:21:22] Well, the direct investment targets that different companies have pledged into the US economy are pretty astounding. Now, to what extent those will be realized, we’ll see, but the numbers are pretty large. If you look in one direction, that’s roughly $3 trillion in total. If you look at another direction, someone is saying it’s roughly five trillion dollars in total, Right. Even a fraction of that is going to be a lot of money and a lot of money coming into this economy. So there’s a big motivation. And, you know, the thing that’s very interesting is that this is a 30 trillion dollar economy. And it’s a 30-trillion-dollar economy with a population of 340 million people. And that is relatively seamless. That functions very well in a federal style. Most people file their taxes. Most people are law-abiding people. Most people are productive people. Right. It’s a great place to do business. And that’s really the, you know, that’s really the ace off the sleeve of the, of the American economy and US society, not to mention that we have such natural resource endowments in terms of energy, water, food. So

Stuart Turley [00:22:31] President Trump’s actions have been to be bankrolling all of those assets and putting them into reestablishing them. He just reestablished all of our coal mines on the financial books. On our coal, he just redid all of the new oil and gas reserves and put them as assets. He’s redefining how the U.S. Looks at its natural resources.

Michael McDonnell [00:22:57] And also bear in mind too that, you know, the United States is developing and making use of technology and with technology, with technology improvements, there’s better, more ecologically sound energy that can come on stream. There’s going to be much more sound, much safer nuclear power. There can be a way there are methods that can develop which can make better use of as an energy resource that doesn’t have climate consequences in the way that it formerly has had. So there are technology improvements, innovations that can make the United States and make the world, for that matter, much more secure in terms of energy availability and production.

Stuart Turley [00:23:43] Cool. Well, I’ll tell you, this has been a lot of fun and I hope to have you back in and visit about your next article. Cause I want to know what you’re thinking around the world. Mark, you’re out in California. So how do people get ahold of you?

Michael McDonnell [00:23:57] Well, you can. I do have a website that folks can go on to, which is www.mmdglobaladvisory, all-one-word.com. And there I have five of probably around 80 or so different blog entries that I’ve done on different aspects of geopolitical economics. Country risk, market risk, and feel free to access those. And my contact information is there, and I would say that’s the best way to reach me. That’s cool. Through my site. And I’ve really enjoyed this, and it’s great talking.

Stuart Turley [00:24:34] Looking forward to future discussions. And as you write your articles, send them, because I’d like to have them up on energy newsbeat.co. And we’ll put you as a contributing author on the ones that you want up there. So I do appreciate that. And so your views are very good. I like having the worldview from an economic perspective. And we have other contributing authors that we put out there as well, too. So thank you very much.

Michael McDonnell [00:25:00] Well, I really enjoyed your questions and your own, your far ranging knowledge of American politics and the energy markets and what’s going on in the world. So it’s a real pleasure to talk and share views with you and share opinions.

Stuart Turley [00:25:14] I think the world’s going to get a lot better. I think, I think there’s great potential.

Michael McDonnell [00:25:18] For it. I really do. And, you know, as folks always say, stay tuned. Buckle up. If you don’t like it, buckle up as well. This is a real pleasure, Stu. I really appreciate the chat.

Stuart Turley [00:25:32] Your show. Let’s go do something epic today. How’s that sound? We’ll try. Okay.