Saudi economy against ongoing “oil war”

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Current geopolitics has drastically changed the situation in Saudi economy. This middle-east country is more and more burning their foreign reserves to ensure economic stability and monetary flexibility.

Last two years indicated that hydrocarbon’s price is not depending on actual supply and demand but essentially on political relations. Tense situation in the Eastern Europe (international sanctions during the Ukrainian crisis) and Syrian Civil War have enforced cuttings in oil branches especially in OPEC countries.

Saudi Arabia, as an oil-addicted state, was forcefully touched by declining prices. After many years of high spendings, their budget deficit has reached $98 billion (15 % of Gross Domestic Product) and if oil value determines near $30 a barrel, deficit will probably rise to $180 billion.

Saudi internal market and monetary policy were modified due to a new, tougher situation. “If anything happens to the riyal exchange peg, the consequences will be dramatic. There will be a serious loss of confidence,” said Khalid Alsweilem, the former head of asset management at the Saudi central bank.

In spite of ministerial claims, fuel’s prices have raised by up to 80% (December 30, 2015) including a 50% revision of the most generally sold petrol to 0.90 riyals per litre.

Near future is going to be nasty for the Kingdom of Saudi Arabia and entire OPEC unless they agree to cut crude production and eliminate the global oil surplus. The U.S plans to sell millions of barrels of crude oil from Strategic Reserve can make crisis deeper and establish a new playmaker in the international fuel’s arena.

Sources:

http://www.telegraph.co.uk/finance/economics/12071761/Saudi-riyal-in-danger-as-oil-war-escalates.html

http://www.bangkokpost.com/news/world/810468/in-global-oil-price-war-saudis-blink-first

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