Saudi arabia has fascinated me since I first met Hani A.Z. Yamani as a teenage student all those years ago at Wharton. Hani's father was Shaikh Ahmed Zaki Yamani the legendary Saudi oil minister (1962-86) under the late King Faisal King Khalid and King Fahd. Shaikh Ahmed managed the 1973 and 1979 oil shocks survived a terrorist assault in Vienna by Carlos the Jackal midwifed the birth of Saudi Aramco the largest energy colossus on earth. His famous quip "The Stone Age did not end because mankind ran out of stones" rings true in the oil world of 2015. Thanks to Hani Shaikh Ahmed personally read and liked the first column I ever wrote in life for the Penn campus newspaper.

This year has been a historic one for Saudi Arabia. The kingdom's finance is also unsettled in these historic times. The 30 per cent fall in the Tadawul index negates the euphoria that greeted the the Capital Markets Authority's decision to open the stock market to foreign investors. The $100 billion budget deficit that the IMF projects at 21 per cent of GDP. The liquidation of $200 billion in offshore assets by the Saudi Arabian Monetary Agency and capital flight. Unlike the UAE where oil and gas is 30 per cent of GDP (down from 90 per cent in the 1970s) Saudi Arabia still depends on oil and gas for 80 per cent of government revenues.

Saudi Arabia is the biggest domestic energy consumer in the Middle East and if current trends continue could well become an oil importer by 2030. The kingdom is also four times as inefficient a user of energy as Britain and Germany. Saudi Arabia is the world's largest consumer of oil to generate electricity. The kingdom spends the world's largest consumer of oil to generate electricity. Saudi Arabia spends the world's largest amount per capita on defence and finances strategic allies like Egypt Jordan Sudan Pakistan Morocco and Bahrain.

The budget breakeven barrel for Saudi oil has surged from $40 a barrel in 2008 to $100 a barrel now. Vast subsidies mean gasoline is a mere 60 a gallon one fourth the price in the UAE. The fuel subsidies cost the government $52 billion a year eight per cent of GDP. The Saudi riyal peg is under pressure though I see no real devaluation risk for now since Sama Governor Dr Fahad Al Mubarak has made a hard commitment to defend the peg. The Tadawul index trades at 15 times earnings and 1.9 times book value on the precipice of a recession that could well see EPS drop by 10 per cent. If oil prices even stay flat Saudi Arabia's fiscal pressure will mean greater Saudi royal bond issuance and higher interest in the local money markets. This almost guarantees a bear market in Saudi equities.

Geopolitics has now amplified the refusal of Riyadh to play the role of the Opec's "swing producer" as it did under Shaikh Ahmed and even in 2009 when oil minister Ali Al Naimi and Prince Abdul Aziz bin Salman engineered a 4.2 mbd output cut to boost the post-Lehman price of Brent from $40 to $100 a barrel its level during the first three years of the Arab Spring. So the oil market faces a supply glut a demand shock (China) a price war (John D. Rockefeller called it "the great sweating" a century ago) and the loss of its swing producer one with the largest spare capacity and lowest production cost in the world.

The world is running out of storage capacity. When this happens prices will plunge to balance supply and demand. Russian output is the highest since the fall of the USSR. Mexico Iraq and offshore West Africa are still pumping big time. Saudi Arabia will not yield to the Kremlin in this game of global chicken now that Putin has chosen the gamble on Assad in Syria. There is only one certain endgame to this savage global price war. A collapse of black gold to $20 its level when George W. Bush rolled history's dice in Saddam's Iraq back in March 2003. The Oil Age will not end because the world runs out of oil.