Saudi Arabia heads for a "lost year"

The Covid-19 pandemic has frozen Saudi Arabia's economy and left it with lakes of unwanted oil.

2020 will be a “lost year” for Saudi Arabia, says The Economist. The Covid-19 epidemic has frozen the desert kingdom’s economy and left it with “lakes of unwanted oil”. Riyadh needs oil at $85/barrel in order to balance its budget. The price plunge has left it with a $2bn weekly hole in its accounts. The state has been forced to slash public expenditure by 50bn riyals (£10.6bn). 

For all the talk of economic diversification, oil provides about two-thirds of government revenue and brought about $208bn into the exchequer last year, says Liam Denning on Bloomberg. That revenue stream could plunge by more than $100bn this year. Budget cuts are politically awkward because two-thirds of the national workforce is employed by the state, with 40% of expenditure devoted to wages. “As it often does, oil has brought enormous wealth, but at the price of economic dynamism”.  What’s more, “Saudi Arabia’s world is coming undone”. The kingdom’s relative stability has for decades rested on the twin pillars of the oil market and American security guarantees. Yet the world is turning away from fossil fuels and Washington is losing interest in the Middle East thanks to domestic production. 

Russia, not Riyadh, has emerged as the main loser from the  price war, says Noah Rothman in Commentary magazine. Moscow refused to cut output in March in order to combat American frackers. Yet a 30% plunge in the price of the rouble shows how vulnerable it is to falling prices. A desperate Russia has now reportedly agreed to 2.5 million barrels per day in cuts, four times more than it refused to countenance a one month ago. “This looks like a victory for the US, and Russia ends up a bigger loser than Saudi Arabia,” says Kremlin analyst Andrey Kortunov.

Recommended

Budget 2021: the chickens come home to roost
Budget

Budget 2021: the chickens come home to roost

Rishi Sunak delivered his budget today amid a fragile and uncertain time. Max King analyses.
27 Oct 2021
Budget 2021: Here is what Chancellor Rishi Sunak announced
Budget

Budget 2021: Here is what Chancellor Rishi Sunak announced

Rishi Sunak delivered his much anticipated Budget today. David Prosser explains what it means for you.
27 Oct 2021
How to invest as oil prices keep heading higher
Commodities

How to invest as oil prices keep heading higher

Oil prices are soaring reversing a sharp meltdown seen at the depths of the Covid-19 crisis. Saloni Sardana explores how you can play the market.
27 Oct 2021
When investors get over-excited, it’s time to worry – but we’re not there yet
Sponsored

When investors get over-excited, it’s time to worry – but we’re not there yet

When investors are pouring money into markets, it can be a warning sign of impending disaster, writes Max King. So how are fund flows looking right no…
26 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
Emerging markets: the Brics never lived up to their promise – but is now the time to buy?
Emerging markets

Emerging markets: the Brics never lived up to their promise – but is now the time to buy?

Twenty years ago hopes were high for Brazil, Russia, India and China – the “Brics” emerging-market economies. But only China has beaten expectations. …
18 Oct 2021