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Saudi Arabia Hit by Low Oil Prices, Faces Difficult Decisions

Public Policy

Douglas-Westwood, an energy business strategy, research and commercial due diligence services provider, commented in its latest edition of DW Monday that low global crude prices have hit Saudi Arabia hard. With a considerable budget deficit, Saudi has been forced to begin borrowing from capital markets – $4 billion in July. The kingdom is highly reliant on oil – accounting for more than 90 percent of budget revenues. Cuts have not been made to capital expenditure and Saudi has engaged in an expensive conflict within Yemen. Consequently, the decision to ride out lower prices has put a huge strain on finances – the IMF (International Monetary Fund) estimates $50 oil will lead to a deficit of ~$140 billion (20 percent of GDP) this year. Plugging holes in the budget with bond issues is the clearest sign yet that the kingdom is feeling the pinch, the question is, how long can it continue?

At least for the time being, there seems to be room for more lending, with plans to raise $27 billion by year end. Debt levels have been dramatically reduced since the late 1990s when borrowing reached 100 percent of GDP (prior to July’s bond issue, debt was 1.6 percent of GDP). At present, liquidity does not seem to be a problem with local banks easily absorbing bond issues. However, further borrowing into 2016 and beyond could prove problematic. Predicted rises in global interest rates over the coming years may make borrowing unattractive, forcing further withdrawals from the country’s foreign reserves. If current oil price trends continue, these reserves could fall to $200 billion by 2018 – 70 percent less than pre-crash levels.

Where does this leave the country? Maintenance of oil output has secured market share and proved devastating for US onshore drilling. However, with a “bathtub” shaped recovery a very real possibility, Riyadh may be forced to make a number of difficult decisions regarding domestic subsidies and expenditure in order to reduce a potentially crippling budget deficit.


14 Comments on "Saudi Arabia Hit by Low Oil Prices, Faces Difficult Decisions"

  1. rockman on Mon, 24th Aug 2015 8:03 am 

    “Maintenance of oil output has secured market share and proved devastating for US onshore drilling.”

    BS IMHO. The KSA had not lost a single bbl of oil market share during the price run up: they sold every bbl the decided to produce. Yeah: low prices shut down a lot of shale projectso. It also delayed/shut down a number of KSA projects they needed to replace their depleting reserve base. Depletion which has now exclerated due to their increased production rate.

    It’s really that f*cking simple: lower oil prices don’t benefit ANY OIL PRODUCER. In fact ghe bigger the producer the greater the pain. Especially for a producer like the KSA whose revenue from
    oil sales is the single life blood source for the country.

  2. Makati1 on Mon, 24th Aug 2015 9:10 am 

    Or … they can sell their USBs and other foreign reserves and pay the bills for … oh … 5 years. Can the US shale last that long?

    RIGZONE – Pimpin’ the suckers again…lol.

  3. Nony on Mon, 24th Aug 2015 9:52 am 

    Drill, baby, drill worked.

  4. Truth Has A Liberal Bias on Mon, 24th Aug 2015 11:06 am 

    USA is in debt to its eyeballs and folks point the finger at KSA claiming they’re on the ropes because they’re drawing down on their 5 years worth of savings.

    The low cost producer with savings vs the marginal producer in debt. It’s not hard to see where this is going.

  5. BC on Mon, 24th Aug 2015 11:16 am 

    It’s time for the Saudis, M_ss_d, and Anglo-American shadow gov’t to get busy with 9/11 II. Empires need enemies to justify squandering more lives and treasury for territorial expansion, resource expropriation, co-opting foreign elites, and exacting tribute from client-states.

    The increasing incidents of terrorism in recent months around the world might be the conditioning for 9/11 II and perhaps a dirty bomb to justify shutting Wall St., The City, and banks for a few days to prepare for the next round of QEternity to coincide with conditioning mass-social hysteria and mass-media propaganda for war against the growing list of “enemies”.

    Of course, nowhere on the list of “enemies” will there be the names of the real terrorists and their weapons of mass destruction.

    That will give Obummer/Obomba more opportunities to add to his legacy and to play golf while the banksters, Pentagon planners, and war profiteers reassert their prerogatives and power.

    We’re due another imperial war cycle, so let’s get it on.

  6. rockman on Mon, 24th Aug 2015 11:26 am 

    Truth – The US is not a marginal oil producer…we’re one of the largest. But the US is very large net oil importer. Which is the point I think you’re trying to make

  7. Truth Has A Liberal Bias on Mon, 24th Aug 2015 12:55 pm 

    Marginal producer refers to cost not volume. USA is a producer of the marginal cost barrel of oil. Duh!

  8. Truth Has A Liberal Bias on Mon, 24th Aug 2015 12:58 pm

    This information is not exactly carved in a stone tablet and hidden on the dark side of the moon.

  9. marko on Mon, 24th Aug 2015 1:26 pm 

    who care about the deficit . It will not be covered ever.

  10. apneaman on Mon, 24th Aug 2015 1:29 pm 

    Drill, baby, drill worked.

    So do steroids nony, but it’s a steep price for being reckless with them. Industry be looking like Lyle Alzado before to long. Price of glory.

  11. Brent on Mon, 24th Aug 2015 1:32 pm 

    Nony so did the collapse of the global economy.

  12. Nony on Mon, 24th Aug 2015 5:48 pm 

    Ape-man, they work for a while:

  13. Apneaman on Mon, 24th Aug 2015 6:10 pm 

    Reckless is the key word nony. That guys doctor even told him to not take creatine – ha I used to throw a scoop or two of that in my protein shakes everyday back when I was lifting. I knew guys that cautiously used roids and were fine – reckless is the key word.

  14. Truth Has A Liberal Bias on Mon, 24th Aug 2015 6:42 pm 

    Once October rolls around you’re gonna see a trainwreck in the LTO.

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