Saudi Arabia’s quarterly budget deficit shrank by nearly three-quarters in the second quarter, courtesy of the same war that hammered its oil industry and sent the economy into its steepest contraction since the pandemic.
The Kingdom posted a 34.3-billion-riyal—or $9.1-billion—shortfall for the three months through June, down from 125.7 billion riyals in the first quarter, according to the finance ministry.
Oil revenue rose 28% from the previous quarter as crude prices jumped. As for spending, it fell 3.5%.
War, as it turns out, is terrible for production and surprisingly helpful for the price of whatever production survives.
Saudi oil output remains well below prewar levels after Iranian attacks and the closure of the Strait of Hormuz disrupted exports. The oil sector contracted almost 25% during the quarter, dragging the broader economy down with it.
But Saudi Arabia has found ways to get at least some barrels out. And the price? None too shabby. The Kingdom redirected crude through pipelines to the Red Sea port of Yanbu, allowing it to collect much higher prices on reduced volumes. Brent was trading near $90 per barrel Thursday and is up more than 47% this year.
The budget still isn’t balanced. EFG Hermes estimates that Saudi Arabia now needs oil near $115 per barrel to cover spending, up from about $96 last year. Riyadh spent heavily during the first weeks of the war, and second-quarter expenditure was still 11% higher than the same quarter last year.
The Kingdom has already signaled that some Vision 2030 projects may be delayed, trimmed, or abandoned if the numbers stop making sense.
The IMF expects higher prices to more than compensate for lower export volumes, narrowing the deficit to 3.7% of GDP this year and 3.1% in 2027.
Saudi Arabia is producing less oil, earning more from it, and posting a smaller deficit while its economy contracts. Just oil economics doing what oil economics does.
By Julianne Geiger for Oilprice.com
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