Saudi Arabia is facing a cash shortage as the price of oil remains low.
The long term price of crude oil has dried up the country’s currency reserves, putting it in the rare position of facing a deficit, CNNMoney reports.
In a scramble for liquidity the oil giant sold $4 billion in bonds over the summer and freed up $50 to $70 billion in overseas investments. Michael Nayebi-Oskoui, Middle East and South Asia analyst at Stratfor, told CNNMoney that in a crisis, “they like to keep cash on hand.”
Ironically, by refusing to cut its oil production, Saudi Arabia directly caused the decline in prices. In an effort to undercut the U.S. energy boom from fracking and put pressure on fellow OPEC rivals like Iran and Venezuela, Saudi Arabia created this current climate of cheap oil. “It’s a dramatic reversal of fortunes for the Saudis. Capital Economics estimates the country’s current account deficit will climb to 7.5% of gross domestic product this year. That’s compared to budget surpluses north of 20% of GDP in the past decade,” CNNMoney reports.
Saudi Arabia’s central bank has lost $77 billion over the last year as it deals with the loss, while still maintaining the government’s spending programs, which have grown by $30 billion over the last year. Financial trouble in the Middle East has also affected Wall Street firms like BlackRock and Franklin Templeton, which historically make huge profits through managing the assets of oil-rich countries. Black Rock CEO Larry Fink told CNNMoney, “It’s raining in some of the commodity-based economies.”
It’s still too early to panic, however. Win Thin, global head of emerging market currency market strategy at Brown Brothers Harriman told CNNMoney, “I wouldn’t push the panic button now. But the situation bears monitoring.”
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