Falling oil prices and continued instability in the Middle East will continue to deplete liquid financial assets in the region’s oil exporters, according to the International Monetary Fund.
The IMF released its Middle East economic outlook report earlier this month, which indicates that Saudi Arabia, the world’s largest exporter of oil, could run out of cash reserves in five years unless crude prices rebound.
As of Friday afternoon, the OPEC Basket price, which is an average of products from the Organization of Petroleum Exporting Countries, sat at about $44 per barrel. Brent Crude, another important global benchmark, sat just above $49.
The report says Saudi Arabia won’t be able to maintain their current spending levels, and Joshua Landis, the director of the Center for Middle East Studies at the University of Oklahoma, says the kingdom could have a multi-billion dollar budget shortfall.
With a war in Yemen and supporting a war in Syria, and also subsidizing the Egyptian regime by over $10 billion a year, Saudi Arabia has giant expenses,” Landis said. “And it's believed its money that it has to be getting is about $100 a barrel in order to break even.”
But Saudi Arabia is also a heavy domestic spender, with countless social programs like subsidized mortgages, free education, and free healthcare. Its citizens also pay nearly nothing in taxes.
“If this goes on for a long time, Saudi Arabia has to tax its people. And that will require democracy,” Landis said. “No taxation without representation – that’s what did it over here and got rid of Britain. So it will test these monarchies which have been stable because they had so much money.”
But Landis does say prices won’t say low forever, with Brent Crude forecast to be in the $60 range next year. He also says Saudi Arabia can mortgage its future as it steps up its bond market interests.
“These articles saying they're going to go bankrupt in five years? Don’t believe it,” Landis said. “They can borrow against that oil for many years to come. Other places are going to go bankrupt a lot sooner.”
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