Category:

Saudi Arabian Interbank Lending Rate Climbs to Six-Year High

A key interest rate in Saudi Arabia, the biggest Arab economy, rose to its highest in six years as liquidity at banks tightens amid the plunge in oil prices. The three-month Saudi Interbank Offered Rate, a benchmark used to price loans, rose 0.4 basis points to 1 percent on Thursday, the highest since April 14, 2009, according to data compiled by Bloomberg. The rate has climbed 23 basis points since this year’s low in March. Bank loans in Saudi Arabia, the world’s biggest oil exporter, have expanded 9 percent in the 12 months through August, faster than the growth in customer deposits of 8.3 percent over the period, according to central bank data. The government has borrowed at least 55 billion riyals ($15 billion) from local banks and institutions through bond issues this year to bridge a fiscal deficit, which the International Monetary Fund expects to climb to more […]

Posted On : Published By : Tom Whipple
Category:

Oil Slump Weighs on Saudi, U.A.E Businesses as PMI Drops

The slump in oil prices is sapping growth momentum of private businesses in the two biggest Arab economies, according to a key indicator released on Tuesday. The Emirates NBD Purchasing Managers’ Index for Saudi Arabia dropped for a second month in a row to 55.7 in October, the lowest level since since the survey began in 2009, driven by weaker expansion in new business. The same measure for the United Arab Emirates fell to 54 from 56 in September, the lowest since April 2013, the Dubai-based bank said. Readings above 50 still signal expansion, while those below indicate contraction. Oil prices have dropped more than 40 percent over the last year, prompting some governments in the six-nation Gulf Cooperation Council to plan spending cuts and curb or eliminate fuel subsidies. Non-oil economic growth in the region will slow to 3.8 percent this year from 5.5 percent in 2014, according […]

Posted On : Published By : Tom Whipple
Category:

Saudi Consumers Are Still Spending Like the Oil Slump Never Happened

Spend the afternoon strolling through Riyadh’s shiny shopping malls, or an evening at one of its luxury restaurants, and you’d never guess there’s an oil slump. That’s not an accident, it’s Saudi policy in action. Sharing oil wealth with the public has helped keep the Al Saud family securely in power as turmoil sweeps the region. When the revenue slows down, as it’s doing now, the kingdom’s rulers would rather run huge budget deficits than risk tampering with that bedrock social contract. Eventually, economists say, something may have to give. The International Monetary Fund predicts a fiscal gap exceeding 20 percent of economic output this year, and says at that rate Saudi savings would run out after five years. Standard & Poor’s cut the country’s credit rating last week. But for now, as it looks to trim project spending and payments to contractors, the world’s top oil exporter is […]

Posted On : Published By : Tom Whipple
Category:

S&P Downgrades Saudi Arabia on Oil Worries

Standard & Poor’s Ratings Services on Friday cut its credit rating on Saudi Arabia, saying the tumble in oil prices is driving a wider government deficit. S&P lowered its rating by one notch to A-plus from double-A-minus. The rating is now four notches below the premier triple-A rating. S&P maintained its negative outlook on the kingdom, saying it could lower its rating in the next two years if the government doesn’t reduce the deficit. The ratings firm said it expects Saudi Arabia’s deficit to increase to 16% of gross domestic product this year from 1.5% in 2014, largely due to the sharp decline in oil prices. Saudi Arabia is one of the world’s top crude oil-exporters, leaving it heavily exposed to the swings in oil prices.

Posted On : Published By : Tom Whipple
Category:

Saudi Arabia Considers Cutting Energy Subsidies

RIYADH–Saudi Arabia, the world’s top crude-oil exporter, is considering raising its domestic energy prices, its oil minister Ali al-Naimi said Tuesday. Asked if the kingdom is considering cutting energy subsidies in the near term, Mr. Naimi told reporters in Riyadh: “What you are asking is: is it under study? And the answer is yes.” Saudi domestic energy prices are among the lowest in the world. The country, the de-facto leader of the Organization of the Petroleum Exporting Countries, is losing potential export revenue by selling oil domestically very cheaply when international buyers pay much higher prices. The country currently spends around $86 billion a year on subsidies for petroleum products like motor fuel, making a gallon of regular gasoline cost about 46 cents. The review has been previously reported, but isn’t something Saudi Arabia’s leaders have talked about openly. Any move to reduce energy subsidies would risk a backlash […]

Posted On : Published By : Tom Whipple
Category:

Saudi Arabia’s Fiscal Break-Even Oil Price to Be Around $US 100 Mark for the Foreseeable Future

Extract: Government spending has increased substantially in recent years. Consequently, the breakeven oil price rose to $106 a barrel in 2014 from $69 a barrel in 2010. As a result, with the large decline in oil prices, the fiscal deficit has increased sharply and is likely to remain high over the medium-term. These deficits will rapidly erode the fiscal buffers (in the form of government deposits and low public debt) that have been built over the past decade. http://www.imf.org/external/pubs/ft/scr/2015/cr15251.pdf Let’s put this into some graphs. We start with the fiscal deficit first, then look at the external balance. Expenditure Fig1: Expenditure, Budgetary Central Government Operations During the period of high oil prices until 2014, expenditure grew by 9-15% pa. In early 2015, King Salman disbursed a bonus of 50 bn Riyal to government employees, contributing to a 30% increase of the annual wage bill. Capital expenditure (transportation, health and […]

Posted On : Published By : Tom Whipple
Category:

Saudi Arabia: Eight of King Salman’s 11 surviving brothers want to oust him

King Salman bin Abdulaziz al-Saud at the Arab League summit in Sharm el-Sheikh in Egypt in March. He took over the Saudi throne in January Eight of the 12 surviving sons of Saudi Arabia’s founding monarch are supporting a move to oust King Salman, 79, the country’s ailing ruler, and replace him with his 73-year-old brother, according to a dissident prince. The prince also claims that a clear majority of the country’s powerful Islamic clerics, known as the Ulama, would back a palace coup to oust the current King and install Prince Ahmed bin Abdulaziz, a former Interior Minister, in his place. “The Ulama and religious people prefer Prince Ahmed – not all of them, but 75 per cent,” said the prince, himself a grandson of King Ibn Saud, who founded the ruling dynasty in 1932. Support from the clerics would be vital for any change of monarch, since […]

Posted On : Published By : Tom Whipple
Category:

For Saudis, Any Countermove Against Putin in Syria Carries Risks

Russian President Vladimir Putin, right, with his Syrian counterpart Bashar al-Assad in Moscow, on Oct. 20. Russia’s entry into the Syrian civil war has tilted the balance in favor of the government side, and there’s no risk-free way for Saudi Arabia — a key backer of the rebels — to tilt it back. Powerful Saudi clerics are calling for a response to the Russian move, even though the kingdom is already bogged down in another war in Yemen. Analysts say the Saudi government will probably speed up the flow of cash and weapons to its allies in the opposition fighting to topple President Bashar al-Assad, who’s also supported by Saudi Arabia’s main rival, Iran. While the Saudis may seek to direct their aid to “moderate forces” in Syria, “the definition of this word is subject to much debate,” said Theodore Karasik, a Dubai-based political analyst. Sending arms “is dangerous […]

Posted On : Published By : Tom Whipple
Category:

CEO of Russia’s Rosneft Criticizes Saudi Oil-Market Strategy

Saudi Arabia’s move to maintain its share of the global oil market and expand in Europe will backfire, said the chief executive officer of Russia’s largest oil producer. “The strategy that Saudi Arabia has chosen doesn’t bring any significant victories,” Igor Sechin, CEO of OAO Rosneft, said Thursday at the Eurasian Forum in Verona, Italy. “More likely the opposite.” After the U.S. cut imports amid a boom in domestic production, exporters from the Middle East are increasing output and seeking new markets, a move that isn’t helpful for the global industry, Sechin said. After oil prices slumped amid a global surplus, Middle Eastern governments have to use “billions of dollars” from sovereign funds, raise large external loans or cut spending on new cars and furniture to make up the shortfall in revenues, he said. Saudi Arabia led the Organization of Petroleum Exporting Countries in a decision last year to […]

Posted On : Published By : Tom Whipple
Category:

Saudis Risk Draining Financial Assets in 5 Years, IMF Says

Riyadh Photographer: Waseem Obaidi/Bloomberg Saudi Arabia may run out of financial assets needed to support spending within five years amid the drop in oil prices if the government maintains current policies, the International Monetary Fund said, underscoring the need of measures to cut the nation’s budget deficit. The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said. Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to shore up its public finances. Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. […]

Posted On : Published By : Tom Whipple