Saudi Arabia Can Withstand 8 Years of Low Prices

A former adviser to Saudi Arabia has said the country can withstand eight years or more of low oil prices as tensions over the price slump simmered between the world’s biggest oil exporter and Iran.

Mohammad al-Sabban told the BBC that Saudi Arabia was concerned about the falling oil price but its cash reserves and planned budget cuts meant it could cope with a long period of depressed prices.

“Saudi Arabia can sustain these low oil prices for at least eight years. First, we have huge financial reserves of about 3tn Saudi riyals (£527bn). Second, Saudi Arabia is embarking now on rationalising its expenditure, trying to take all the fat out of the budget,” Sabban told the BBC’s World Business Report. “I think [Saudi Arabia] is worried but we [have to] wait for the full medicine that we have prescribed for ourself to take its course.”

Without cuts in spending on infrastructure, sports stadiums and new cities, Saudi Arabia can withstand low oil prices for at least four years, said Sabban, a former adviser to the Saudi minister for petroleum. He also suggested that lower oil prices could have long-term benefits for Saudi Arabia.

Saudi Arabia has refused to cut production despite a more than 50% fall in the price of oil since last summer.

“To shorten the cycle, you need to allow prices to go as low as possible to see those marginal producers move out of the market on the one hand, and also if there is any increase in demand that will be welcomed.”

His comments were a further signal that Saudi Arabia was prepared to use its financial strength to ride out depressed oil prices now piling pressure on other producers, including Iran, which also faces western sanctions over its nuclear programme.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza