Trade Arabia cited a Bank of America Merrill report, “Global Energy Weekly”, warning Saudi Arabia that the drain on its foreign exchange (FX) reserves could accelerate to $18b per month if Brent crude oil prices average $30 per barrel.

“… Saudi Arabia’s FX reserves are still high and point to an ample buffer for now, but they have been falling at a relatively fast rate. However, should China allow for significantly faster FX depreciation than is currently priced in by markets, we believe oil prices could fall further. Naturally, the FX reserve drain on Saudi could accelerate to $18 billion per month if Brent crude oil prices average $30/bbl, sharply reducing the kingdom’s ability to retain its currency peg,” the report said.

“We see cases for both a soft and hard-landing in commodities. In short, a depeg of the Saudi riyal is our number one black-swan event for the global oil market in 2016, a highly unlikely but highly impactful risk. Surely, if Saudi opts to modestly cut supply to push Brent crude oil prices back above $50 per barrel over the next year, EM (emerging markets) growth could stabilize at these low levels and eventually recover,” the report argued.

At the same time the report warned that if Saudi Arabia depegs from the US dollar, which has been rising lately, oil prices could collapse to $25 per barrel.

The price of oil in 2016, then, will depend heavily how the USD moves against the Chinese yuan and the Saudi Riyal. Any decline in commodity prices would further weaken emerging markets.

According to Bloomberg contracts used to speculate on the riyal’s exchange rate in the next 12 months are trading near a 13-year high, despite official statements that OPEC is working actively with other oil producers to stabilize the market.

A decoupling of the riyal from the USD has been driving this speculation, which means that the country simply must face up to option of cutting production to help boost prices or adjusting the riyal’s rate to stem the decline in foreign reserves.

Central Bank Governor Fahad Al-Mubarak had said in September the Saud Arabia will maintain the currency’s peg to the dollar, as long as the economy is dependent on oil.

Shaun Osborne, the Toronto-based chief foreign-exchange strategist for Scotiabank, has also noted how the currency peg withstood lower oil prices in the 1990s and revaluation pressure resulting from surging prices in the late 2000s.

Nonetheless, the fear is that a slump in the yuan may ultimately force Saudi Arabia’s hand given the strong linkages between commodity prices and exchanges rates.