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Saudi Arabia, Hit With Oil Collapse and Coronavirus, Tosses Lifelines

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Saudi Arabia is taking unprecedented measures to cushion the blow of rock-bottom oil prices and the new coronavirus pandemic, as the monarchy seeks to extricate the kingdom from its worst financial predicament in decades.

Oil prices have crashed since early March in part because Crown Prince Mohammed bin Salman launched an oil-price war with Russia, just as the coronavirus locked down the Saudi economy and sapped global demand for crude. Prince Mohammed, the kingdom’s day-to-day ruler, later walked back the confrontation, agreeing April 12 to a deal with 23 countries to cut output.

But the move so far is failing to boost prices. State-owned oil firm Saudi Aramco has further slashed production, and dozens of oil-laden supertankers float idly at sea. Smaller oil revenues mean the world’s top oil exporter will have to draw down $32 billion from foreign reserves this year and borrow billions more from debt markets.

Saudi government spending is as high now, with rock-bottom oil prices, as during the so-called magic decadebetween 2004 and 2014 when prices often were above $100.Saudi government revenue, spendingSource: IMF (through 2019); Al Rajhi Capital (forecast)Notes: Forecast for 2020; 1 billion Saudi riyals=$266.2 million

.billion Saudi riyalsExpendituresRevenue2004’05’06’07’08’09’10’11’12’13’14’15’16’17’18’19’200.00.20.40.60.81.01.21.4

Expendituresx2012x0.917 billion Saudi riyals

Businesses that had positioned themselves for a new Saudi Arabia under Prince Mohammed’s social and economic overhauls—coffee shops, gyms, cinemas and travel agencies—are scrambling for government lifelines to stay afloat. The crisis also is forcing spending cuts on the prince’s transformation of the economy away from oil.

“The kingdom has not faced such a crisis—neither healthwise nor financially—for decades,” Finance Minister Mohammed al-Jadaan told government-owned broadcaster Al Arabiya on Saturday. “As long as we do not touch basic necessities of the people, all options are open.”

The Saudi stock market slumped 7.4% Sunday following the minister’s interview.

Moody’s Investors Service also on Friday downgraded its assessment of Saudi Arabia’s credit rating to negative, citing the severe shock to global oil demand and the pandemic. The kingdom requires oil prices of $76 a barrel to balance its budget this year, according to the International Monetary Fund. Brent crude, the global benchmark, was at $26.31 on Monday afternoon in London.

People followed social-distancing markings as they lined up in a Riyadh shopping mall on Saturday after the government allowed stores to reopen.

Photo: ahmed yosri/Reuters

To cushion the economic blow, Saudi Arabia has launched unprecedented domestic stimulus. It is helping support wages of furloughed workers in private industry and continuing to pay public-sector salaries. Businesses have been told to postpone sales, excise and income taxes. The central bank has offered liquidity to banks so they can restructure debts and offer deferrals on loan repayments. The government has also waived expat fees for hiring foreigners and cut utility prices.

Saudi Arabia’s stimulus might mean its economy suffers less than other nations. The IMF forecasts the country’s gross domestic product will fall 2.3% this year, compared with 5.9% for the U.S. and 3% world-wide.

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Saudi Arabia plans to build Neom, a futuristic megacity in the middle of the desert. But residents resisting evictions and a historic collapse in oil prices have raised new questions about the project.

Yet the kingdom’s budget deficit is expected to balloon to nearly 13% of output, and the government has agreed to raise a self-imposed debt-to-GDP ceiling to 50% from 30%. Saudi Arabia’s reserves dropped by a record $24 billion in March to $479 billion.

So far there has been little popular reaction to the economic setbacks. Saudis have praised the government’s response to Covid-19, particularly a pledge to pay for the treatment of those suffering from it. The coronavirus has infected 24,079 people and killed 169.

Saudi government surplus/deficit, aspercentage of GDPSource: IMFNote: 2020 figure is a projection

%

2005’10’15’20-20-100102030

But the risks of a blowback for the Saudi monarchy are rising. The government’s worsening financial position could mean it is forced to cut public-sector wages. That would threaten the longstanding social pact in Saudi Arabia: The Al Saud family for decades redistributed the nation’s oil wealth, via subsidies and easy government jobs, in return for a pliant population and absolute power.

“There is a reckoning,” said Karen Young, a resident scholar focusing on the Middle East at the American Enterprise Institute, a Washington think tank. “The future looks different. Average incomes will be lower. Young people will not live the way their parents did.”

Prince Mohammed, conscious of the kingdom’s dependence on finite oil wealth, has attempted in recent years to restructure the economy away from oil. He has reduced subsidies and tried to transfer public-sector workers to the private sector.

The effort has produced mixed results. Multibillion-dollar projects designed to boost new industries, such as aviation, tourism and entertainment, aren’t yet driving growth. That is still dependent on government expenditure, more than half of which goes on public-sector wages, underpinning consumer spending, according to economists.

“We didn’t see this coming,” Mona al-Sulaiman, owner of Jeddah-based Boho Cafe, said of the sudden economic downdraft. “No one did.”

Saudi Arabia requires $76 a barrel for its oil to balance its budget this year, says the IMF. On Monday afternoon in London, Brent crude was at $26.31.

Photo: maxim shemetov/Reuters

Until six weeks ago, business at Boho was booming as the eatery benefited from Saudi government reforms that for the first time permitted live music in cafes and different genders to mix freely in public. It has since turned to the Saudi government to stay afloat as sales have sunk 95% and it has had to cut wages by a third. The government has promised to pay up to 60% of the salaries of furloughed Saudis in the private sector.

Faisal Dalati, general manager at Elite Food Co., likewise is using the government’s furlough program for Saudis, although he says the support won’t be enough to keep afloat his 24 casual-dining outlets.

Mr. Dalati thinks the sector won’t return to normal until September, and, to stay in business, hopes to get credit via a central bank program to get banks lending to small businesses. “Otherwise no one will make it until that date,” he said.

To ensure Saudi Arabia can provide the stimulus and keep paying wages, economists say many of the prince’s pet projects related to his economic and social-reform program will have to be scaled back or scrapped altogether. The projects vary in cost and ambition, from a plan for more green spaces in the capital, Riyadh, to a metropolis of theme parks and sports stadia in the desert to an entire new city-state with its own laws, dubbed Neom.

Still, the heavy government stimulus at the moment is helping places such as Rayan Ghalayini’s Jeddah-based fitness gym survive.

He rode a new wave of awareness around healthy living, but after the lockdown he had to close the doors, rent his equipment to clients and pivot online. He took advantage of a holiday on rental payment, the furlough program, and another program that provides financial support for 36 months for Saudis still working.

“We’re actually making more money right now,” he said.

WSJ



15 Comments on "Saudi Arabia, Hit With Oil Collapse and Coronavirus, Tosses Lifelines"

  1. bochen777 on Tue, 5th May 2020 3:30 pm 

    USA’s Multi-Prong End-Game approach with its CIA biovirus COVID19 to STOP China

    https://forum.ascendchina.ch/t/usas-multi-prong-end-game-approach-with-its-cia-biovirus-covid19-to-stop-china/49

    1) Use the economic devastation that COVID has enacted upon the world to convince the entire globe to turn away from China, to isolate China and to cripple China economically and diplomatically. COVID-19 was the artificial “circuit breaker” and “reset” event that US needed to get its vassals back on board, America felt it was losing its economic grip and the best solution wasn’t to start a direct war with China but to release the CIA biovirus, let it play out, and then pin it on China, and use that false flag event to sway the rest of the world to turn away from China and turn back in towards the Western/US lead systems. Without this artificial “stop” in the system it would have been nearly impossible for America to pull this off, rerouting a flowing river is much more difficult than it is to wait until the flow slows to a trickle and then carving a new path for the water; likewise COVID19 causing the economic shutdown of the world was the perfectly planned and pre-staged event in order so that as the countries of the world start their economies back up they will be much more inclined to rebuild towards the West and to turn against China than had the COVID event never occurred. Indeed, this COVID event already achieved the US desired goal of forcing UK to reconsider its Huawei 5G stance, and Boris Johnson personally getting the virus only seeks and serves to play into US hands and American interests… Now we are seeing the Germans are following suite and have joined the US lead all out war against China, and if the rest of the EU follows as well then America would have succeeded in using biowarfare to isolate China on the worldstage and also to restore its petrodollar hegemony. COVID gives America the chance to usher in a new global calculus in the world and also affords the US the opening to give its allies, vassals and enemies alike the ultimate ultimatum: the opportunity to choose sides as it prepares a full Cold War 2.0 against China!

    2) The high-level notion of who stands to lose the most in terms of raw total nominal losses… Just like Microsoft implementing ad blockers in its browsers by default also hurts it Bing ad revenues, the fact that Google has 90% of the ad marketshare means that while Microsoft is also hurting itself by blocking ads it is hurting Google even more since Google has more total dollars that it stands to lose out on. Likewise, as China has surpassed USA as the world’s global trading partner and this trending was accelerating, it become clear to the US elite that they would rather deploy COVID to torpedo the entire world economy just to freeze the current status quo in place and prevent China’s continued rise rather than let the status quo play out in which it was projected that America will be overtaken by China within a decade or two. This is what is called the Scorched Earth policy, in that if the USA cannot remain #1, it would rather burn the entire world down and drag everyone else down with them than to allow a Great Power Competitor (“Central Threat of Our Times”) that wasn’t Caucasian/White to overtake them. It is much easier to destroy than it is to build, easier to burn than it is to create. While China excels at “builder” civilization and benefits from a growing world economy and increasing trade (including the One Belt Road and other projects) America on the other hand has taken a policy of “scorched earth”, that if they cannot be number one then no one else shall be either, and that if the US is going down, then the US will take the whole world down with it, so to speak. You can build a great sand castle on the beach as fast as you want, but all it takes is an obnoxious school yard bully to come along and kick it a few hard times and all your hours of hard work comes crashing down. So instead of Win-Win (with America managing its own decline over time) it has become lose-lose with America suffering its own blowback just to make sure China doesn’t get its victory either. Another element in this is that of the great leveling of the playing field and using COVID as a great equalizer in the sense that it asymmetrically targets China structurally long term and serves as erasure of China’s comparative advantages in relative terms. This sort of “race to the bottom” strategy is one in which US feels like it has the better odds of winning, instead of competing with China to see who can advance further, it believes in actively sabotaging China, even if it hurts itself in the process, as this gives it the maximum chance to yield the greatest comparative results since it would allow the US to close the relative gap.

    3) In the off-chance that America isn’t able to ride the momentum of its COVID covert biowarfare global social re-engineering false-flag operation to ultimate Mission Accomplished success status etc then it will also leverage COVID for other contingency plans and to hedge its bets with a fall back position of last resort. If China manages to still come out ahead of the US long term despite the COVID event, the US elites will need a backup plan and already come to a realization that if they ultimately cannot stop China from rising to the top then they need to still make sure they still retain a parallel full industrial base independent of China as a strategic fallback position and defensive posture. Hypothetically under this scenario, once China is at the top, the US would still command enough foreign assets/cronies that consist of a full-spectrum industrial base. The US has to make sure that the US, and the West, is not left a big hole in it own global order of supply chain and industrial bases. Let’s say the petrodollar hegemony falls and the US no longer enjoys having the global reserve currency status and all the perks that comes with it, – then not only will America lose the geopolitical advantage and leverage of being no longer able to unilaterally abuse the US dollar global reserve currency status and financially weaponize it to coercively sanction other nations that do not kowtow to it, and not only will the US no longer be able to “harvest” China and make China pay for America’s own growing militarization expenditures and overseas adventures aimed against China, but indeed it will no longer be able to financially and economically colonize the entire world nor will it be able to continue to usurp/extract/harvest the wealth of the world by taxing a percentage and taking a cut out from every transaction that takes place on this globe –, and then it will no longer be able to continue to get free things from the world while printing fake money in return (Infinite Quantitative Easings), and if that eventuality will come to pass one day in the future, be it two, five, ten or even twenty years from now, America will need to have its own industrial base back since by then its free ride and gravy train will essentially be over and once the music stops it won’t be able to count on its vassals to pay the rent so it has to go back to making its own stuff by itself, hence the need to retain and restore its own domestic industrial base fully independent of China … and COVID is the perfect false-flag event to give it a push in the butt and force the American people to get adjusted to the hard times ahead when they can no longer count on getting free shit from China or from the rest of the world.

    It is also a way for the US elite to consolidate power and restructure the future of America in which the so-called Nonnegotiable American Way of Life (high living standards propped up by the rest of the world via Petrodollar hegemony) will have to be re-negotiated one way or another and this event serves as merely one way to subconsciously desensitize the American people to a “new normal”, one in which America and Americans will have to share the ever shrinking pie with the rest of the multilateral world order and in which the US government will have to manage its own decline whilst also managing – the ever lowering/lowered – expectations of its own people back in the homeland.

    When the US government starts treating its own people like the way it treats the populations of its vassals, puppet regimes, occupied territories and other colonies etc then that is when you know the cannibalization has already started and the decline has entered its final stages. When the going was good they threw some bones to the middle class, but now that America is in full decline it cannot even afford to treat its own people right and have to start cannibalizing and consolidating from within just to survive.

  2. I AM THE MOB on Tue, 5th May 2020 3:58 pm 

    You can’t prove ONE PERSON DIED OF CIAVIRUS!

  3. Abraham van Helsing on Tue, 5th May 2020 4:06 pm 

    “China’s Rise, America’s Fall”

    https://www.unz.com/runz/chinas-rise-americas-fall/

  4. makati1 on Tue, 5th May 2020 6:09 pm 

    MOB, I think you are correct on that call. Many deaths, but most of old age or “complications” like a bad heart. This was/is a planned event.

  5. I AM THE MOB on Tue, 5th May 2020 6:12 pm 

    Tanzania suspends laboratory head after president questions coronavirus tests

    “DAR ES SALAAM (Reuters) – Tanzania has suspended the head of its national health laboratory in charge of testing for the coronavirus and ordered an investigation, a day after President John Magufuli questioned the tests’ accuracy.

    Magufuli said on Sunday the imported test kits were faulty as they had returned positive results on a goat and a pawpaw — among several non-human samples submitted for testing, with technicians left deliberately unaware of their origins.”

    https://www.reuters.com/article/us-health-coronavirus-tanzania/tanzania-suspends-laboratory-head-after-president-questions-coronavirus-tests-idUSKBN22G295

    Hilarious!

  6. day 12 of peace on Tue, 5th May 2020 6:19 pm 

    56
    219

  7. I AM THE MOB on Tue, 5th May 2020 6:46 pm 

    Woodstock Occurred Amid a Pandemic

    “In my lifetime, there was another deadly flu epidemic in the United States. The flu spread from Hong Kong to the United States, arriving December 1968 and peaking a year later. It ultimately killed 100,000 people in the U.S., mostly over the age of 65, and one million worldwide.

    Lifespan in the US in those days was 70 whereas it is 78 today. Population was 200 million as compared with 328 million today. If it would be possible to extrapolate the death data based on population and demographics, we might be looking at a quarter million deaths today from this virus. So in terms of lethality, it was as deadly and scary as COVID-19 if not more so, though we shall have to wait to see.”

    https://www.realclearmarkets.com/2020/05/02/woodstock_occurred_amid_pandemic_490563.html

    Is this a global pandemic or agenda? Evidence and data seem to suggest the later.

  8. makati1 on Tue, 5th May 2020 6:52 pm 

    Agenda, MOB. Agenda. No lock-down in 1968. I was 24 then. I was not into drugs, but I remember hippies and the big party. Wish I was there then. Sigh!

  9. SocialRevolutionComing on Tue, 5th May 2020 7:40 pm 

    https://www.youtube.com/watch?v=W010-w6QCug

    They are killing the whole world economy with the new COVID reopening restriction. The want bigger cycle pah so people biking don’t give each other COVID. The economy will never restart. Social revolution are coming. Noticed the whole world are implementing these restrictions.

    COVID panic look like the work of GOD’s that seek total destruction of modernity.

    The jobs losses from COVID will be so big that social revolution are unavoidable.

    Quote from Armageddon:

    MGM Resorts employees are being informed that the current layoffs may become permanent due to a lack of customer demand.

    It’s clear that the world’s 2nd largest casino corporation isn’t expecting an economic turnaround anytime soon.

    You have rental car companies, airlines, cruise ships and many more all about to go bankrupt.

  10. I AM THE MOB on Tue, 5th May 2020 7:48 pm 

    Dogs trained to sniff out coronavirus

    https://www.youtube.com/watch?v=9fMSKfuKg5o&feature=emb_title

    Sick em boys!

    LOL

  11. love conquer all on Tue, 5th May 2020 8:54 pm 

    SocialRevolutionComing on Tue, 5th May 2020 7:40 pm

    https://www.youtube.com/watch?v=W010-w6QCug

    They are killing the whole world economy with the new COVID reopening restriction. The want bigger cycle pah so people biking don’t give each other COVID.

    supertard

    still love a lot? ever wonder why Tyson and all other butchers are going down?

    Who run those joint? Who needs special privilege during this peaceful month? Enjoy meatless halal supermarket?

  12. I AM THE MOB on Tue, 5th May 2020 10:48 pm 

    Chinese editorial: Seeking Reparations for COVID-19 Would Be “Tantamount to the Declaration of War”

    https://www.scmp.com/comment/opinion/article/3082887/us-move-seek-coronavirus-pandemic-damages-china-might-well-trigger

  13. Abraham van Helsing on Wed, 6th May 2020 1:20 am 

    Boris Palmer, a mayor in Germany, prominent member of the Greens Party and a jew to top it of, has said:

    “Let me be blunt: In Germany, we might be saving people who would be dead in half a year anyway”

    Exactly right.

    Palmer has been under severe criticism from within his own party, as he has written a book in 2017 (after Brexit and Trump and the decision by Merkel to let in 1.5 million fake refugees, leading to the rise of the AfD)

    https://www.amazon.de/k%C3%B6nnen-nicht-allen-helfen-Belastbarkeit/dp/3827501075/ref=sr_1_1

    “We can’t help them all”

    Palmer has been accused of right-wing tendencies and some within the Greens want to throw him out.

    https://www.youtube.com/watch?v=ewjjdu40H50

    https://en.wikipedia.org/wiki/Boris_Palmer

  14. Abraham van Helsing on Wed, 6th May 2020 3:43 am 

    Norway: 70% of new vehicles bought are e-vehicles:

    https://cleantechnica.com/2020/05/05/norways-april-ev-market-share-jumps-to-70-strongest-growth-in-2-years/

    Norway, a very rich country, thanks to, paradoxically, oil and gas, is the planetary incubator for e-driving, thanks to government policy.

    Norway and in its wake, California, the Netherlands, Sweden and other are making it happen by enabling economies of scale.

    https://tinyurl.com/ybchn79h

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