Trouble in Kingdom: Saudis Face Problems as Oil Wealth Shrinks
Trouble in Kingdom: Saudis Face Problems as Oil Wealth Shrinks © AP Photo/ Evan Vucci
21:56 03.10.2015Get short URL
Saudi Arabia is nervous as its mountain of oil money is quickly vanishing.
In the past, the Kingdom was filthy rich, making a killing from high oil prices and the abundance of oil the Mother Earth gifted the Saudi princes. But now the oil-producing giant is getting squeezed by the slump in crude oil prices, Oleg Obukhov wrote for RIA Novosti.
The oil market has dramatically changed since last summer due to oversupply in the market. In November 2014, OPEC decided to keep its oil output levels unchanged, which led to a further slump in crude oil prices.
The low oil prices forced the Saudi Kingdom to burn through their foreign reserves at an unprecedented pace. In addition to a Saudi-led airstrike campaign in Yemen, Saudi King Salman bin Abdulaziz Al Saud was pretty generous toward government workers, putting a further strain on public finances that were already damaged by the slump in oil prices.
Currently the situation is that the Saudi reserves continue to shrink, while oil prices remain low for the foreseeable future. Meanwhile, the Saudi deficit has already reached one-fifth of its GDP, or around $130 billion, Obukhov said.
Feeling the trouble, Saudi Arabia decided to withdraw billions of dollars from foreign funds and global asset managers in which the Kingdom had invested in the past.
“The Saudis feel much more comfortable bringing liquidity home in times of crisis. They like to keep cash on hands,” said Michael Nayebi-Oskoui, Middle East and South Asia analyst at Stratfor, as cited by CNN.
Moreover, the Saudi government asked its domestic banks to finance a bond program trying to counterbalance the quick decline in its reserves.
Just how long will this continue? Some analysts believe that Saudi Arabia can weather the storm, but only if oil prices rebound in the near future. Others speculate that if the situation continues as it is, the Kingdom might very well face a regime change or even civil unrest, similar to Yemen and Egypt, investigative journalist Nafeez Ahmed said in the Middle East Eye.