#SaudiArabia’s Economy Can Ill Afford Oil-Price War It Started - Bloomberg

Saudi Arabia’s Economy Can Ill Afford Oil-Price War It Started - Bloomberg:

Saudi Arabia’s Crown Prince Mohammed bin Salman has just started an oil-price war. Winning it will come at a cost he might not be ready to pay for long.

If oil prices fail to recover and stay at less than half the level Saudi Arabia needs to balance its budget, the economy -- and the crown prince’s big ambitions to reform it -- may be among the biggest victims. The energy sector accounts for about 80% of the kingdom’s exports and two-thirds of its fiscal revenue.

Should Brent crude remain at $35 without an adjustment in spending, Saudi Arabia would run a deficit of nearly 15% of economic output in 2020, while its net foreign reserves could run out in about five years unless it uses other funding sources, according to Abu Dhabi Commercial Bank.

“Saudi has accumulated significant reserves that will allow it to see through a prolonged period of low prices, but this may come at a cost,” said Tarek Fadlallah, chief executive officer of the Middle East unit of Nomura Asset Management in Dubai. “The cost is the money that might otherwise be used to help the economy diversify.”