The Kingdom of Saudi Arabia managed to overcome the economic crisis caused by the Corona pandemic, and emerged from it stronger politically and economically with the boom in oil prices, according to the American “Bloomberg” agency.
In a report published on Wednesday, the agency says that Saudi Arabia came close to a “brink” in early 2020 after the pandemic sent oil prices crashing and forced Riyadh to raise taxes and increase borrowing to cover the budget deficit.
She adds that the rise in oil prices during the last period and the increase in Saudi crude production helped restore the Kingdom’s financial conditions and strengthen the position of Saudi Crown Prince Mohammed bin Salman.
If oil prices remain at their current levels of $80 a barrel, and Saudi production is at the level of 10 million barrels per day, the kingdom’s total oil revenues will exceed $300 billion in 2022, according to Bloomberg estimates.
“These revenues will put Riyadh on the right track to enjoy one of its best years ever,” according to “Bloomberg,” which indicated that the International Energy Agency expects Saudi oil production to average 10.7 million barrels per day in 2022, the highest annual average ever.
What does this mean for Saudi Arabia?
Saudi Arabia’s foreign currency reserves have declined significantly over the past eight years with the drop in oil prices, but they have recently started to rise again.
Riyadh was planning a budget deficit of 140 billion riyals ($37 billion) in 2021, but by the end of the third quarter the deficit amounted to only 5.4 billion riyals.
The Saudi oil expert, Imad Al-Rimal, points out that Riyadh’s success in overcoming the economic crisis caused by the Corona epidemic is not only related to the rise in oil prices.
Al-Rimal told Al-Hurra that “oil is the main source of income in the kingdom, and any increase or decrease in its prices affects the kingdom’s budget.”
He added, “However, the recovery of the Saudi economy is no longer dependent on oil alone. Rather, the Kingdom has been able, through its reform program, to increase non-oil revenues.”
Al-Rimal gives an example of this by noting that “the country’s non-oil financial revenues amounted during the first half of this year” to 204 billion riyals, compared to 294 billion dollars in oil revenues, and this indicates the extent to which the Saudi economy has succeeded in diversifying its inputs.
The success of the crown prince’s plans
“The oil revenue money will help the Crown Prince, Mohammed bin Salman, spend generously domestically, by creating huge new cities in the desert and modernizing infrastructure in an attempt to make the kingdom a financial and commercial center in the Middle East,” Bloomberg says.
The agency adds that Western and current and former and Arab government officials, diplomats, consultants, bankers and oil executives told it in private interviews that Riyadh emerged from the Corona crisis stronger politically and economically.
She notes that “for bin Salman, the rise in oil prices will increase the chances of success of his plans to make the kingdom a global investment power through a public investment fund worth 450 billion dollars.”
This will, according to the agency, give bin Salman the confidence to demand greater attention from US President Joe Biden, who has refused to meet with the Saudi prince since taking office last January.
The former US diplomat, David Rondell, says that the rise in oil prices has “reinforced Saudi Arabia’s position on the financial and political levels,” adding that “Mohammed bin Salman’s position will become more secure.”
Jason Bordoff, a former senior energy official under President Barack Obama, believes that “Saudi Arabia is in a strong position as a result of the high demand for oil, and therefore the world will need more Saudi oil in the foreseeable future.”
But Imad Al-Rimal believes that “it is a mistake to think that Saudi Arabia is seeking to raise oil prices to strengthen its financial budget,” noting that “Saudi Arabia, through its role in OPEC +, seeks with the producing countries to balance the oil markets.”
A report published by the US investigative website “The Intercept” last week indicated that bin Salman refuses to comply with Biden’s calls regarding oil prices because “he has not had a meeting with Biden so far, and also as a result of the United States’ withdrawal from the war in Yemen.”
The report indicated that Riyadh ignored Biden’s request, who called last August for OPEC to increase production again after the price hike.
Biden also linked, in statements to the American network “CNN”, last month, the rise in fuel prices in global markets in Saudi Arabia and the lack of supply from OPEC countries, as well as with “many people in the Middle East” who want to talk to him, but he excludes talking With them.
Biden did not specify who he said wanted to talk “in the Middle East”, but he has confirmed since taking office that he will not communicate with bin Salman and will only communicate with King Salman bin Abdulaziz, according to the American network.
“The United States has to do something big to get the Saudis to change course, and that should include a bilateral meeting between Biden and Mohammed bin Salman,” Neil Quilliam, associate fellow in the Middle East and North Africa program at Chatham House think tank, told Bloomberg.
On the other hand, the Saudi oil expert, Imad Al-Rimal, points out that “Saudi Arabia is an ally of the United States, and if Washington wants to become great, it needs a great ally like Saudi Arabia.”
Al-Rimal believes that “the problem of the current US administration is not with its relationship with Saudi Arabia, but with its contradictions in managing the energy file.”
Biden takes a tougher stance than his predecessor, Donald Trump, toward Riyadh over its human rights record and the Yemen war.
At the beginning of this year, the Biden administration issued a US intelligence report that pointed the finger at Mohammed bin Salman in the 2018 killing of Saudi journalist Jamal Khashoggi, but avoided any direct punishment. The Crown Prince denies any involvement in the incident.
The US administration withdrew its support for the offensive operations carried out by the Saudi-led coalition to fight the Iran-allied Houthis in Yemen.
The high prices at US stations that consume large quantities of gasoline, a major political dilemma for President Biden.
Biden announced, on Tuesday, a “major initiative” to reduce oil prices by offering 50 million barrels that the United States will withdraw from its strategic oil reserves, the largest amount ever withdrawn.
The United States usually uses only the tiny fraction of these reserves, currently estimated at 609 million barrels, stored underground in Louisiana and Texas, in the event of natural disasters or international crises.
Not only did Biden order the use of the 50 million barrels to adjust prices, but he did so in coordination with other countries, something that had not happened before.