Right Hooks

Low Oil Prices Devastate Saudi Arabia's Economy

This year the Saudis expect another $87 billion shortfall.

Jordan Candler · Feb. 26, 2016

Millions of Americans who live paycheck to paycheck received some much-needed relief — a real mini stimulus, if you will — when oil prices unexpectedly began to tailspin two years ago. The even better news for now is that the cost of oil has stayed perennially and stubbornly low (though beware the long-term consequences). But for OPEC members, the news was never good for one critical reason: Oil sales are the economic support system of most Arab countries, so the effect of sluggish exports is both immediate and crippling. That puts countries like Saudi Arabia — a U.S. ally — in an interesting dilemma.

The cost of crude oil has slipped by 70% since 2014, resulting in the Saudis operating deep in the red. “Oil revenue accounts for an estimated 90 percent of the Saudi government’s income,” according to The Washington Post, “leading to last year’s large budget deficit of $98 billion, or about 15 percent of gross domestic product.” And this year the Saudis expect another $87 billion shortfall. This isn’t exactly a zero-sum game, but there is a yin to the yang of low oil prices. It will bear watching how the market affects our allies and adversaries around the world.

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