Saudi Arabia’s alarming situation

Saudi Arabia alarming situation

Saudi Arabia, which recently added cold water to the attempt of major global oil producers to remediate the situation of the worsened crude markets, finds itself at crossroads today. Having burnt through $150bn in financial reserves since late 2014 the country is set to create history.

The sort of crude prices did already take a toll on daily fundamentals while speculations about the outcome of a production freeze meeting between OPEC and Non-OPEC members kept haunting the crude markets. This month’s Doha meeting, much anticipated by investors and major producers did not turn out to help in underpinning crude prices. The reason is clear, disagreement to lower production levels mainly between Saudi Arabia and Iran due to a political dispute.

Simultaneously, major producers as Saudi Arabia seem much embarrassed with the alarming situation and are giving what it takes to get over it. A collapse in oil revenues pushed the producer to come up with its first ever international bond issue to tackle a budget shortfall. As such Saudi Arabia takes up an unprecedented debt issuance or in simpler terms, it is taking a loan of $10 billion from foreign banks namely the J.P. Morgan Chase & Co., Goldman Sachs Group Inc, Morgan Stanley, the Bank of Tokyo-Mitsubishi UFJ, Industrial & Commercial Bank of China Ltd. and Mizuho Bank. The five-year loan shall be ratified by the end of this month and it shall be a historical comeback. Indeed, the country is now back to the global credit markets after 25 long years.

An outlook

With energy prices tumbling considerably since 2014, Persian Gulf exporters came under pressure as their principal source of income came at stake. Saudi Arabia isn’t the only country at this verge and the situation is seriously alarming. In a period of global oversupply, if the situation is such now, then what shall happen in the next ten years? The Olduvai theory states that by the year 2030, crude oil will be such a rare commodity that its extraction will be most unaffordable and the least profitable. Measures taken now, have to be concrete and in anticipation of such an eventuality.

Priscilla Camryn By: Priscilla Camryn
833 Views
2 Likes