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

How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Hundreds of mortgage products withdrawn as interest rates surge
Mortgages

Hundreds of mortgage products withdrawn as interest rates surge

Hundreds of mortgage products have been withdrawn after sterling crashed to the lowest levels in decades against the dollar and the Bank of England sa…
28 Sep 2022
What changes to the pensions charge cap mean for you
Pensions

What changes to the pensions charge cap mean for you

The government could raise the pensions charge cap – the amount you can be charged in your workplace's default pension fund. Saloni Sardana explains w…
27 Sep 2022
The best student bank accounts
Personal finance

The best student bank accounts

As we approach the start of an academic year, Ruth Jackson-Kirby rounds up what you should look for when choosing a student bank account and outlines …
27 Sep 2022

Most Popular

Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
The pick of this year's best-performing investment trusts
Investment trusts

The pick of this year's best-performing investment trusts

Market conditions haven’t been easy, but these investment trusts have delivered strong growth, says David Stevenson.
23 Sep 2022
The hidden cost of employee share schemes
Investment strategy

The hidden cost of employee share schemes

Paying employees in shares comes at a cost to investors – but it isn’t always easy to see how much, says Stephen Clapham.
26 Sep 2022