On Monday, we brought you “Saudi Default, Devaluation Odds Spike As Mid-East Careens Into Chaos,” in which we outlined the jump in riyal forwards and widening of CDS spreads that Riyadh witnessed in the aftermath of the kingdom’s move to cut diplomatic ties with Iran.

In short: the market is getting worried that Riyadh is about to careen into crisis. In the face of slumping crude, the Saudis are staring down double digit budget deficits and the prospect of having to once again tap debt markets in order to offset the SAMA burn and keep the kingdom from having to implement further subsidy cuts.

The open hostilities with Iran all but guarantee the war in Yemen will escalate (just today for instance, Tehran accused the Saudis of bombing the Iranian embassy in Sana’a) and that entails a further drain on the kingdom’s finances as the monarchy will be forced to fund a prolonged and intractable struggle with the Houthis.

Additionally, the more tension there is between Riyadh and Tehran, the more fractious OPEC will become and with Iranian supply set to rise in the new year as international sanctions are lifted, this may well be one Mid-East conflict that drives oil prices lower rather than higher - especially if the SAR peg falls.

On Thursday, in the wake of a veritable meltdown in markets across the globe, riyal forwards hit their highest level in almost two decades as oil plummeted. As Bloomberg notes, “twelve-month forward contracts for the riyal climbed 260 points to 950 as of 3:49 p.m. in Riyadh, set for the steepest close since December 1996 [reflecting] growing speculation the world’s biggest oil exporter may allow its currency to slide against the dollar for the first time since 1986.”

Meanwhile, Saudi CDS spreads are now wider than those of Portugal.

So just to drive the point home, Saudi Arabia, which entered 2015 with virtually no debt and an FX reserve war chest that amounted to around three quarters of a trillion dollars, is now viewed as less creditworthy than a country where a coalition of socialists, left-wingers, and communists just overthrew the government.

"Allahu Akbar"?