Recent reports confirm that the Kingdom of Saudi Arabia is now preparing to reverse crude oil production cuts. However, the initiative has put strain on its spending plan for large-scale projects already under construction.
Financial analysts commented that Saudi would likely need to reduce expenditure by over 3.7 per cent more than the annual drop originally planned for this year, as current oil prices hang around $70 per barrel. This value is well below the level needed to help the kingdom balance its finances.
Head economist for Abu Dhabi Commercial Bank, Monica Malik, commented:
“A sharper and sustained fall in the oil price would require a deeper retrenchment in government spending to contain the size of the shortfall and the building in government debt. There would also likely be some further adjustment and recalibration to the off-budget investment plans.”
The state-owned petroleum refineries company and owner of the Valvoline lubricant brand, Aramco, stated recently that it intends to declare dividends totalling $85.4 billion in 2025 – a fall of close to a third of 2024’s figure that exceeded $124 billion.
The economic squeeze arrives as Saudi pursues several ambitious initiatives that will require hundreds of billions of dollars to complete. These plans include the kingdom’s flagship project called “Neom City”, which plays a crucial role in Crown Prince Mohammed bin Salman’s aim to transform the Saudi economy.
Some projects included in the Saudi Vision plan for 2030, like the Red Sea resorts, have already launched. However, others are still under construction, such as the state-of-the-art Neom desert development, which has suffered delays.
