Saudi Arabia to ‘roll with the punches’ on oil price

• Analysts predict spending slowdown
• Q1 budget deficit rises to $16bn
• Expo and World Cup are priorities

Saudi Arabia may have to tighten its reins on spending on the back of a decline in international oil prices, analysts have said.

The country’s first-quarter budget deficit of SAR59 billion ($16 billion), reported this week, was the biggest in three years.

“A deficit was broadly expected, says Monica Malik, chief economist at Abu Dhabi Commercial Bank. “But what was critical is that, in the first quarter, oil prices were still relatively strong at the beginning of the year.”

The price of Brent crude averaged $75 a barrel in the first three months of the year before plunging in the days after President Donald Trump announced a near tripling in US import tariffs on April 2. That led the International Monetary Fund and other agencies to revise down expectations for global economic growth and energy demand. 

On Tuesday Brent is trading at less than $62 per barrel – lower than it has been in over four years.

Goldman Sachs this week predicted that the price of oil would average around $60 per barrel for the rest of 2025 and fall further to $56 per barrel next year, following a decision by Opec+ at the weekend to increase production. 

“The impact of this sharp fall will really be visible from the second quarter,” says Malik. 

Saudi Arabia, which relies on oil for about 60 percent of government revenue, is undertaking a raft of projects worth up to $1 trillion under its Vision 2030 transformation strategy.

The kingdom has indicated its willingness to borrow to fund these efforts, pencilling in SAR139 billion of debt for 2025.

Officials have repeatedly stated that, although dips in the oil price put pressure on Saudi Arabia’s ability to borrow, they also serve to focus minds on the need to lessen the country’s exposure to hydrocarbons.

• Oil price fall poses spending dilemma for Saudi Arabia
• Aramco’s $40bn dividends drop highlights Saudi spending
• Oil price slump hits Saudi Arabia’s economic growth

The biggest slowdown in spending is likely to happen off budget, analysts say.

Budgeted spending on infrastructure projects, backed by national oil company Aramco and the $940 billion Public Investment Fund, has already been curtailed in the face of declining oil prices. So far, though, no projects have been cancelled outright. 

“These are very long-term projects,” says Farouk Soussa, Middle East and North Africa economist at Goldman Sachs. “The implementation times are flexible, by definition.”

Analysts believe entities such as PIF might respond to the drop in oil price by prioritising the more time-sensitive developments, such as those needed to support Riyadh Expo in 2030 or the 2034 World Cup, over projects that could be considered less pressing, such as Neom’s futuristic city The Line.

“What does give us an indication of a need to pull back much more than anything else is what’s happening on the external side,” says Soussa.

The kingdom’s current account balance swung from a surplus of $35 billion in 2023 to a $6 billion deficit in 2024, even though oil prices averaged around $80 a barrel that year.

Spending on Vision 2030 projects is “effectively growing domestic demand in an unsustainable manner because they are resulting in big-time importation of goods [and] services, while exports have remained pretty much stagnant”, says Soussa.

Two years of depressed oil prices could make the deficit unsustainable.

As things stand now, Goldman Sachs projects that Saudi Arabia needs to bring in an additional $135 billion this year and next year to plug a financing gap.

If the price of oil falls to below $40, that number rises to $265 billion.

The country has several ways to address these pressures. With a debt-to-GDP ratio of just 29 percent, there is room to borrow, the IMF says. Saudi Arabia can also limit any increase in spending or cut it altogether, at least in the short term, and potentially sell off state or para-state assets, especially those it holds abroad.

“They’ll have to roll with the punches,” says Soussa.