Saudi oil shock: $67 billion deficit looms with price plunge
The sharp drop in oil prices could have serious consequences for Saudi Arabia's finances and its ambitious economic plans. According to calculations by Goldman Sachs, the kingdom's budget deficit is likely to increase to $67 billion this year, reports Bloomberg.
This would mean that the deficit would be more than double the forecasts from the end of 2024. The situation may force Prince Mohammed bin Salman to increase debt in global bond markets.
Oil prices are falling. This impacts the Middle East
Oil prices have fallen to their lowest level in about four years following U.S. President Donald Trump's announcement of new tariffs on imports from almost all countries on April 2nd, heightening the risk of a global recession. Shortly thereafter, the OPEC+ cartel, led by Saudi Arabia and Russia, surprised energy markets by announcing accelerated plans to increase production. Although the price of Brent crude oil rebounded after Trump's announcement of delaying some tariffs, it remains around $65 per barrel, representing a decrease of almost 15% over the past week.
The Saudi Ministry of Finance stated that it is still assessing recent events and is ready to take all necessary steps to maintain a strong fiscal position.
Challenges for Saudi finances
Even before the price collapse, oil was too cheap for Saudi Arabia to balance its budget. According to Ziad Daoud, chief emerging markets economist at Bloomberg Economics, last year the Saudi government needed prices at $93 to achieve budget balance. If you consider the expenditure of the state wealth fund on the crown prince's mega-projects, the oil price would need to rise to as much as $108.
In recent months, the Saudi government has delayed some spending decisions. The Ministry of Finance explained that this action aimed to reprioritize and avoid overheating the economy.
Although Saudi Arabia does not disclose its oil price assumptions for its budget, it estimated this year's fiscal deficit at 2.3% of gross domestic product, but it could rise to 3.7% in a low-income scenario. According to Goldman Sachs, a deficit of $67 billion would mean a gap exceeding 6%, the largest since 2020, during the COVID-19 pandemic.
Financing ambitious plans
Increasing oil production under the new OPEC+ plans will do little to offset revenue losses from lower prices, says Daoud, who reduced this year's growth forecast for the $1.1 trillion economy to 2.6% from 3%. In his opinion, the non-oil sector, which is the focus of the crown prince's projects and employs the vast majority of Saudis, will suffer.
Daoud pointed out that the surge in Saudi Arabia's non-oil sector is still rooted in oil revenues. He explained that a drop in prices leads to budget cuts, a deceleration of construction activity, and fewer jobs in the public sector.
Saudi Arabia is likely to increase debt even though it is already the largest bond issuer on global markets among developing countries, having sold dollar and euro-denominated bonds worth over $14 billion in 2025. According to calculations by Tim Callen, a visiting scholar at the Arab Gulf States Institute in Washington, the country could raise an additional $16.5 billion by the end of the year, provided no further spending cuts are made.
In favor of the Gulf state is a debt-to-GDP ratio of about 30%, much lower than most other emerging markets. S&P Global Ratings last month upgraded Saudi Arabia's rating to the level of Japan and China, stating that the government's efforts to diversify the economy's income sources are gaining momentum.
