Saudi Arabia is currently enjoying oil revenues in excess of its fiscal needs, but government spending and domestic consumption of crude oil are rising far faster than overall oil output.
For about the next decade, the Kingdom will continue to be in a strong fiscal position:
• The “breakeven” price for oil that matches actual revenues with expenditures is currently around $84 per barrel for the Kingdom, comfortably below the global price.
• Net foreign assets held by the central bank are $481 billion, 111 percent of GDP and three times the government budget, easily enough to finance any likely deficits for many years.
• The government has very low debt, at 10 percent of GDP, all domestically held. Should foreign reserves drop, the government has large untapped borrowing capacity.
After the benign decade ahead, unless the current spending and oil trends are changed, the government faces a very different environment:
• Domestic consumption of oil, now sold locally for an average of around $10 per barrel, will reach 6.5 million barrels per day in 2030, exceeding oil export volumes.
• We do not expect total Saudi oil production to rise above 11.5 million barrels per day by 2030.
• Even with a projected slowdown in growth of government spending, the breakeven price for oil will be over $320 per barrel in 2030.
• The government will be running budget deficits from 2014, which become substantial by the 2020s. By 2030, foreign assets will be drawn down to minimal levels and debt will be rising rapidly.
Preventing this outcome requires tough policy reforms in areas such as domestic pricing of energy and taxation, an aggressive commitment to alternative energy sources, especially solar and nuclear power, and increasing the Kingdom’s share of global oil production.