The oil price collapse is depriving Saudi Arabia of US$27.5 billion in oil revenues this year, Saudi Crown Prince Mohammed bin Salman said on Friday, admitting that the current oil income is not enough to cover the Kingdom’s salaries bill.
Saudi Arabia had projected last year that this year’s revenues for the state would be US$222 billion (833 billion Saudi riyals), of which US$137 billion (513 billion riyals) would come from oil, the crown prince said in a speech carried by the official Saudi Press Agency.
However, after the collapse in oil prices, Saudi Arabia’s oil revenues actually dropped to US$109 billion (410 billion riyals), Mohammed bin Salman said.
Thus, the price crash—which Saudi Arabia itself helped to create by flooding the market with oil in April—cost the world’s top oil exporter just over US$27.5 billion in oil revenues this year.
“These revenues alone are insufficient to cover even the salaries bill estimated at 504 billion riyals in this year’s budget, not to mention the difficulty of financing other items which include capital spending by 173 billion riyals and social security benefits by 69 billion riyals as well as operation and maintenance bill estimated at 140 billion riyals and others, which means an economic recession and millions of jobs lost,” Mohammed bin Salman said in his speech.
The collapse in oil prices has forced the Kingdom to take some very unpopular measures such as tripling the value-added tax (VAT), reducing payouts to poorer households, and discontinuing cost-of-living allowances for state workers.
Earlier this week, Fitch Ratings revised down its the outlook on Saudi Arabia’s long-term foreign-currency Issuer Default Rating (IDR) to ‘negative’ from ‘stable’, citing “the continued weakening of its fiscal and external balance sheets, which has been accelerated by the coronavirus pandemic and lower oil prices, despite the government’s strong commitment to fiscal consolidation.”
By Tsvetana Paraskova for Oilprice.com
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This provides ample evidence that something is changing in Saudi Arabia under his leadership. The Saudi people are more willing to accept a temporary hardship and even lower standard of living when their leaders are explaining to them the situation with honesty and transparency.
Soon the pandemic will be history with the eventual availability of effective anti-COVID vaccines and the global economy will resume its surge and with it the global oil demand and prices.
If any, the pandemic has proven irrevocably that oil and the global economy are inseparable. Destroy one and you destroy the other and vice versa. The global economy will continue to run on oil and gas throughout the 21st century and probably far beyond.
So to those who are trying to burnish their environmental credentials by talking about how the pandemic has accelerated peak oil demand and brought it closer than ever, I will tell them they are deluding themselves.
There will neither be a post-oil era nor a peak oil demand throughout the 21st century and far beyond. Moreover, the notions of an imminent global energy transition from oil and gas to renewables and zero emissions are no more than illusions. Oil will continue to be the fulcrum of the global economy and the core business of the global oil industry well into the future.
Last but not least the last barrels of crude produced and used in the world will be Saudi and Iraqi ones.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London