Oil price raises $1 trillion question for Saudi Arabia

• Vision 2030 spending may be hit
• But near-term change ‘unlikely’
• Crude prices have fallen to 4-year lows

Questions are being raised about the long-term future of Saudi Arabia’s trillion-dollar infrastructure strategy as oil prices hit a four-year low and global stock markets tumble, according to economists.

For the world’s second-largest oil producer, much depends on the trajectory of crude prices. The price of Brent crude has fallen by about 13 percent to less than $65 per barrel since President Donald Trump announced global tariffs on April 2.

The International Monetary Fund estimates that Riyadh needs a price of just over $90 per barrel to balance its books.

Oil is “the number one” factor, according to Monica Malik, chief economist at Abu Dhabi Commercial Bank. However, she believes that “in the near term, Saudi Arabia is unlikely to change its spending plans”.

Saudi Arabia plans to spend $1 trillion on infrastructure alone by 2030 as it works to diversify its economy away from oil, which accounts for about a third of its gross domestic product. 

That spending includes preparations for the 2029 Asian Winter Games to be held in Neom, Expo 2030 in Riyadh and the 2034 World Cup. 

Even before the biggest shift in US trade policy in more than a century, Saudi Arabia was planning to borrow $37 billion more this year to finance projects. That borrowing may have to increase further to cover a bigger-than-expected shortfall in oil revenue. 

“In the short term they can borrow,” said Robin Mills, CEO of consultancy Qamar Energy and an AGBI columnist.

Saudi Arabia’s debt-to-GDP ratio stands at about 30 percent, well below the 88 percent average for euro-area countries. 

Its cost of oil production is among the lowest in the world, which also works in the country’s favour. Last week Opec+ announced it would unwind cuts in its oil production quotas, giving Saudi Arabia an opportunity to grab more market share. 

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Lower global prices also make US shale oil, which is more expensive to produce, less competitive. 

“US shale is less competitive than it was even a few days ago and certainly less than it was last year,” Mills said. “At some point, [the Saudis] had to get back into regaining market share and they seem to have now taken that move.”

Saudi Arabia, like other Gulf oil producers, was hit with a 10 percent “baseline” tariff last week, but energy is exempt from the levies. Oil accounts for more than 85 percent of Saudi exports to the US.

“While we estimate the tariffs will weigh on growth in Saudi Arabia and the wider GCC, the region will be one of the least impacted thanks to relatively low reciprocal tariffs, limited exposure to the US and strong domestic dynamic,” said Scott Livermore, chief economist of Oxford Economics and an AGBI columnist. 

“We will maintain a positive near-term outlook for Saudi Arabia.”