Saudi Arabia budget insulated from effects of lower oil prices

Source: U.S. Energy Information Administration, based on Bloomberg, International Monetary Fund

Saudi Arabia is the largest exporter of crude oil and other petroleum liquids in the world, and their oil exports accounted for 89% of the country's total revenue in 2014. The recent decline in global oil prices is decreasing the value of these exports, leading to a potential budget shortfall. In its 2015 budget, Saudi Arabia plans to spend about $230 billion but expects to take in $190.7 billion in revenue, resulting in an overall deficit of $38.6 billion. While the oil price assumption was not specified in Saudi Arabia's budget, the budget was crafted in December 2014, when crude oil prices were between $55 and $70 dollars per barrel.

In addition to having the second-largest proved oil reserves—268 billion barrels, or 16%, of the world total in 2014, behind only Venezuela's 298 billion barrels—Saudi Arabia has a massive sovereign wealth fund (SWF) that will enable it to weather lower oil prices. To maintain spending at the same level as in the past, Saudi Arabia would need to tap its SWF, which currently has $733 billion, or about 19 times its expected 2015 budget shortfall of $39 billion. Consequently, the short-term effect of lower oil prices on Saudi Arabia should be minimal. In contrast, OPEC's decision to keep crude oil production near present levels, keeping supply high and prices low, has affected the budgets of members that lack Saudi Arabia's financial reserves.

If oil prices remain low for an extended period and spending levels remain similar to recent history, Saudi Arabia will continue to run a budget deficit. Even with the SWF, Saudi Arabia's ability to grow, strengthen, and even diversify its economy depends on a steady stream of revenue from the sale of this oil over the long term.

Principal contributor: Joseph Ayoub