Saudi Arabia was ready for low oil prices, say experts

Riyadh has been preparing itself for low oil prices and it has enough money to stay comfortable, according to analysts

Saudi Arabia was ready for low oil prices, say experts

World Bulletin/News Desk

Saudi Arabia has built up enough hard currency reserves to allow it to maintain social spending even with a few years of low oil prices, says Jim Krane, an energy analyst from U.S. Rice University’s Baker Institute.

According to Saudi Arabia’s 2015 budget, spending is projected at approximately $230 billion, $4 billion more than in 2014’s budget plan - the smallest increase in the last 10 years.

"The Saudi strategy is a medium term one. Saudi Arabia has been planning for this sort of scenario and they have the cash to stay comfortable for longer than some other big producer countries," Krane says.

 If the oil price bust continues for much longer than a few years, the Saudis will have to move to trim spending, he adds.

"If things get as bad as they did in the long oil bust of the 1980s-90s, they may even go into debt. Social spending in Saudi Arabia is key to regime control, so the government will do all it can to maintain spending," he adds.

Saudi Arabia’s revenues were $226 billion in 2014’s budget plan and are projected to decrease to $190 billion in 2015.

"Saudi Arabia did not reveal the break-even (point) of oil price to balance the budget. However it seems the government is assuming oil price to be at $55 a barrel and the country’s oil production at 9.5 million barrels per day. It is clear that the oil price is too conservative," says Naser al-Tamimi, a U.K.-based Middle East analyst.

According to al-Tamimi, the budget deficit will depend on the price of oil, a drop from $55 a barrel means an increase in the fiscal deficit and any increase above $55 will reduce the deficit.

"All in all, Saudi Arabia has a significant financial buffers that allow it to finance its spending," al-Tamimi says.

The price of Brent crude oil has continued its decline on Dec. 31, reaching as low as $55.57 per barrel - its lowest level since May 2009.

Riyadh says it cannot cut production and lose market share while supplies from other producers in the world are increasing. 

However, some countries and market players believe Saudi Arabia has other motives and is trying to harm Russia and Iran by helping push oil prices down.

Last Mod: 04 Ocak 2015, 17:10
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