Saudi Arabia must cut Billions From Its Budget due the Oil Crash

Saudi Arabia is seeking advice on how to cut billions of dollars from next year’s budget because of the slump in crude prices, according to two people familiar with the matter.

The government is working with advisers on a review of capital spending plans and may delay or shrink some infrastructure projects to save money, the people said, asking not to be identified as the information is private. The government is in the early stages of the review and could look at cutting investment spending, estimated to be about 382 billion riyals ($102 billion) this year, by about 10 percent or more, the people said. Current spending on areas such as public sector salaries wouldn’t be affected, the people said.

They are fighting wars in the Yemeni front.  So the cash surplus is being drained faster than the government can manage.

Earlier this week,

The Tadawul All-Shares Index in Riyadh, the Gulf’s leading market, shed 549.51 points, or 6.86%, to close at 7,463.32 points.

The kingdom’s all-important petrochemicals industry lost 7.94%, while the real-estate sector tumbled 9.50%.

In Dubai, the leading DFM Index slumped 6.96% to close at 3,451.48 points.

Saudi Arabia’s oil and gas sector makes up 45 percent of GDP, funds about 80 of the government’s budget, and accounts for 90 percent of exports. Saudi Arabia’s 2014 budget spending was $294.3 billion, with a $14.4 billion deficit. The 2015 Saudi budget was cut down to $229.3 billion in spending, with an expected $38.6 billion deficit.

Saudi Arabia imports 70 percent of its food and does not produce military hardware, cars, refrigerators, civil airplanes, ships, or most manufactured consumer and industrial goods. Saudi Arabia’s only real domestic industry is petrochemicals.

Saudi citizens tend to lack employable skills and are culturally not inclined to work. Of the 30 million residents, only 5.5 million work and 3 million work directly for the government. The small private sector tends to employ foreigners.

Imagine if the Iran oil is flooded on the market.  $25 US oil is a real possibility.  The OPEC to break the shale drillers has failed. The strategy effectively triggered a price war with shale drillers in the US and Russia. However, both rival producers have increased production in response to the lower prices.

Saudi Arabia has increased its share of the market, now pumping over 10.6m barrels per day (bpd) of crude despite Opec setting a production target ceiling at 30m bpd. The kingdom would have to agree to make the biggest cuts if any collective action by Opec were to succeed to lift prices.

Could the world’s largest exporter of oil move to restrain production in hopes of stabilising prices?

WE seriously doubt it. It is hemorrhaging cash and needs the money.

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