News / Middle East

    Saudi Economic Shake-up Shows It Is Planning for Cheap Oil

    FILE - Cars queue for petrol at a gas station in Dubai, UAE, June 11, 2012. Saudi Arabia's planned cuts in spending and energy subsidies signal that the world's largest crude exporter is bracing for a prolonged period of low oil prices.
    FILE - Cars queue for petrol at a gas station in Dubai, UAE, June 11, 2012. Saudi Arabia's planned cuts in spending and energy subsidies signal that the world's largest crude exporter is bracing for a prolonged period of low oil prices.
    Reuters

    Saudi Arabia's planned cuts in spending and energy subsidies signal that the world's largest crude exporter is bracing for a prolonged period of low oil prices. 

    The OPEC heavyweight shows no signs of wavering in the long-term oil strategy it has orchestrated since last year. Instead, it appears willing to continue tolerating cheap crude to defend market share and wait for the market to balance without cutting supplies, oil sources and analysts say. 

    In one of the strongest signals that the kingdom will stay the course despite the impact on its finances, Saudi Aramco's chairman Khalid al-Falih said it could outlast others. 

    "We see the market balancing sometime in 2016, we see demand ultimately exceeding supply and soaking up a lot of the excess inventory and prices in due course will respond regardless of when and by how much," Falih told a news conference late on Monday detailing next year's budget. 

    "Saudi Arabia more than anyone else has the capacity to wait out the market until this balancing takes place," he said. 

    Analysts said the plans announced on Monday to shrink a record state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatization showed Riyadh was expecting lower revenues. 

    "We don't see any changes to Saudi Arabia's oil policy - in the context of oil production," said Amrita Sen, chief oil analyst at consultancy Energy Aspects. 
    "The budget changes suggest they are expecting oil prices to stay low for some time and the reforms are a small step towards addressing that." 

    Belt-tightening

    The 2016 budget and reforms announcements marked the biggest shake-up to economic policy in the kingdom for over a decade and aimed to cut the government deficit to 326 billion riyals, down from 367 billion riyals or 15 percent of gross domestic product in 2015.

    Next year's budget projects spending of 840 billion riyals, down from 975 billion riyals spent in 2015.

    The government also said it was hiking prices for fuels, water and electricity as well as gas feedstock used by industry, as part of politically sensitive subsidy reforms.

    "Saudi Arabia can either spend its way out of the current scenario or start belt-tightening. In the past the country has spent lavishly on health, education and infrastructure in difficult times knowing that oil prices will be supportive," said Asim Bakhtiar, head of research and investment advisory, Saudi Fransi Capital.

    "If oil has entered a down cycle then belt-tightening will prevail."

    Falih, who is also the health minister, became chairman of Aramco, the world's biggest state energy firm, earlier this year after more than 30 years in the company.

    As one of one of a handful of Saudi figures whose views are closely watched by traders and analysts for any insight into the kingdom's oil thinking, Falih has long been considered a possible successor to Saudi Oil Minister Ali al-Naimi.

    His appearance at the news conference with two other ministers, during which he shared his views on oil prices and market assessment, was seen as a possible signal he could be named oil minister when Naimi, 80, eventually retires.

    The Organization of the Petroleum Exporting Countries (OPEC) rolled over its year-long strategy of pumping at will in its Dec. 4 meeting, raising the stakes in its survival-of-the-fittest market strategy.

    Riyadh was the driving force behind OPEC's shift in policy last year, rejecting calls to reduce output to support oil prices that are trading this month at their lowest since 2004. It chose instead to defend market share against higher-cost-rivals.

    Falih said the policy had borne fruit.

    "Over the last year we have seen the down cycle in the oil markets have a significant impact on both supply and demand. Supply has plateaued in North America and started declining by significant amounts and we expect that to continue or perhaps accelerate in 2016," he said.

    Brent was trading at around $36.85 a barrel on Tuesday, a sharp drop from a high of $115 a barrel in June 2014 before OPEC's policy shift.

    The Finance Ministry did not disclose the average oil price assumed in its 2016 budget calculations but economists estimated it was about $40 a barrel and saw crude production remaining high at above 10 million barrels per day next year.

    "We do not see Saudi Arabia... cutting production in order to support upward movement in prices. So far, Saudi policy of gaining market share has worked, with lower prices undercutting both OPEC and non-OPEC competitors in key markets," wrote analysts at Jadwa Investment, a leading Saudi financial firm, in a note on Tuesday.

    You May Like

    Post-White House, Obamas to Rent Washington Mansion

    Nine-bedroom home is 3 kilometers from Oval Office, near capital's Embassy Row; rent estimated at around $22,000 a month

    Red Planet? Not so much!

    New research suggest that Mars is in a warm period between cyclical ice ages, and that during Ice Age Maximum over 500,000 years ago, the red planet was decidedly ice, and much whiter to the naked eye.

    Taj Mahal Battles New Threat from Insects

    Swarms of insects are proliferating in the heavily contaminated waters of the Yamuna River, which flows behind the 17th century monument

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Vietnamese-American Youth Optimistic About Obama's Visit to Vietnami
    X
    Elizabeth Lee
    May 22, 2016 6:04 AM
    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video Vietnamese-American Youth Optimistic About Obama's Visit to Vietnam

    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video First-generation, Afghan-American Student Sets Sights on Basketball Glory

    Their parents are immigrants to the United States. They are kids who live between two worlds -- their parents' homeland and the U.S. For many of them, they feel most "American" at school. It can be tricky balancing both worlds. In this report, produced by Beth Mendelson, Arash Arabasadi tells us about one Afghan-American student who seems to be coping -- one shot at a time.
    Video

    Video Newest US Citizens, Writing the Next Great Chapter

    While universities across the United States honor their newest graduates this Friday, many immigrants in downtown Manhattan are celebrating, too. One hundred of them, representing 31 countries across four continents, graduated as U.S. citizens, joining the ranks of 680,000 others every year in New York and cities around the country.
    Video

    Video Vietnam Sees Strong Economic Growth Despite Incomplete Reforms

    Vietnam has transformed its communist economy to become one of the world's fastest-growing nations. While the reforms are incomplete, multinational corporations see a profitable future in Vietnam and have made major investments -- as VOA's Jim Randle reports.
    Video

    Video Qatar Denies World Cup Corruption

    The head of Qatar’s organizing committee for the 2022 World Cup insists his country's bid to host the soccer tournament was completely clean, despite the corruption scandals that have rocked the sport’s governing body, FIFA. Hassan Al-Thawadi also said new laws would offer protection to migrants working on World Cup construction projects. VOA's Henry Ridgwell reports.
    Video

    Video Infrastructure Funding Puts Cambodia on Front Line of International Politics

    When leaders of the world’s seven most developed economies meet in Japan next week, demands for infrastructure investment world wide will be high on the agenda. Japanese Prime Minister Shinzo Abe’s push for “quality infrastructure investment” throughout Asia has been widely viewed as a counter to the rise of Chinese investment flooding into region.
    Video

    Video Democrats Fear Party Unity a Casualty in Clinton-Sanders Battle

    Democratic presidential front-runner Hillary Clinton claimed a narrow victory in Tuesday's Kentucky primary even as rival Bernie Sanders won in Oregon. Tensions between the two campaigns are rising, prompting fears that the party will have a difficult time unifying to face the presumptive Republican nominee, Donald Trump. VOA national correspondent Jim Malone has more from Washington.
    Video

    Video Portrait of a Transgender Marriage: Husband and Wife Navigate New Roles

    As controversy continues in North Carolina over the use of public bathrooms by transgender individuals, personal struggles with gender identity that were once secret are now coming to light. VOA’s Tina Trinh explored the ramifications for one couple as part of trans.formation, a series of stories on transgender issues.
    Video

    Video Amerikan Hero Flips Stereotype of Middle Eastern Character

    An Iranian American comedian is hoping to connect with American audiences through a film that inverts some of Hollywood's stereotypes about Middle Eastern characters. Sama Dizayee reports.
    Video

    Video Budding Young Inventors Tackle City's Problems with 3-D Printing

    Every city has problems, and local officials and politicians are often frustrated by their inability to solve them. But surprising solutions can come from unexpected places. Students in Baltimore. Maryland, took up the challenge to solve problems they identified in their city, and came up with projects and products to make a difference. VOA's June Soh has more on a digital fabrication competition primarily focused on 3-D design and printing. Carol Pearson narrates.

    Special Report

    Adrift The Invisible African Diaspora