Saudi Arabia’s push for OPEC’s first oil production cut in eight years comes as its finances fall into disarray.
The Saudi government’s budget deficit has ballooned to one-fifth of its economic output this year despite its $57 billion in spending cuts since oil prices collapsed. That’s about twice the size of the U.S. deficit in 2009, the worst year of the so-called Great Recession, energy research firm Wood Mackenzie estimates in a new report.
The Kingdom has pushed back major infrastructure projects, cut state employee wages and burned through $180 billion in financial reserves, a quarter of its coffers, as oil prices have languished under half the $92 a barrel oil price it needs to balance its government budget.
Mounting financial pressure on Saudi Arabia and other key Middle Eastern oil producers is one reason analysts believe the Saudi-led Organization of Petroleum Exporting Countries has a better chance of reaching a deal to curb oil production at a formal meeting in Vienna on Wednesday than it did in April, when the cartel scuttled a similar deal.
“In a low oil price world, Saudi Arabia would have to run down reserves further,” said Ed Rawle, Wood Mackenzie’s chief economist, in an interview. “Any increase in oil prices would reduce that financial pressure.”
Like Saudi Arabia, Iraq’s fiscal deficit has also climbed to 20 percent of its GDP. The Kingdom’s two Persian Gulf allies, Kuwait and the United Arab Emirates, are not far behind with fiscal deficits of 12 percent and 9 percent, according to Wood Mackenzie.
Read the Houston Chronicle’s full story on OPEC’s proposed deal to curb oil production here.