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Twilight in the Desert for Saudi and MBS?

17 0 4
18.09.2020

It appears as if Saudi de facto ruler, Crown Prince Mohammed bin Salman, is on a mission to destroy the world oil giant by one after the other ill-conceived economic decisions. Now, as MBS orders yet new desperation cuts in Saudi oil prices, his economy is imploding from all sides—from the stupid Vision 2030 plan to even the traditional oil sector, the source for 87% of the Kingdom budget. The economic decline of Saudi Arabia will have huge geopolitical consequences beyond the Middle East.

As if it had learned nothing from its 2014 oil price war, then targeting the growing USA oil shale industry, Saudi Prince MBS ordered a new oil price war in March. That was after Russia, not an official OPEC member, declined to accept an added 300,000 barrel a day cut in output. The Russian argument was that doing so in a very uncertain world oil market would be foolish and counter-productive. The Russians were right. Saudis flooded world markets with an added 3 million barrels a day by early April. That was just the time when the global panic around the COVID-19 coronavirus spread led to a de facto shutdown of world airlines, auto and truck and ship fuel demand. MBS forgot to take that into account, and oil prices plunged. With it, the Saudi oil revenues to the state budget fell too.

Backfire

Within two weeks following the March Saudi oil war, this against both Russia and USA, world oil prices had plunged from near $60 a barrel to below $30. A catastrophe to put it mildly. Saudi Arabia needs oil at $90 a barrel to balance its state budget according to Fitch Ratings. By April as the coronavirus lockdowns were in full force around the world, Saudi oil export revenue was down a whopping 65% from April 2019. To put this into perspective in 2012 Saudi oil export earnings were some $350 billion. For 2020 estimated earnings may not reach $150 billion.

By early April global oil demand had plunged by an unheard-of 30% as the coronavirus lockdowns took their toll on the world economy. Only because of an unprecedented temporary OPEC cut then in oil production of 10 million barrels daily, led by Saudi, and this time joined by Russia, did world prices slowly rise from lows nearly $20 to around $40 a barrel, still a far cry from recovery. However prices are again going lower in mid-September as the world economy, including China and the USA, are far from recovered in oil demand.

Vision 2030?

This situation is a disaster for the mid-term project of MBS to leapfrog Saudi Arabia from oil dependency into the 4th Industrial Revolution. MBS took a report prepared for him by the controversial McKinsey consultants and called it Vision 2030.

To call the Saudi Vision 2030 an unrealistic pipe dream is putting it mildly. The blueprint,........

© New Eastern Outlook


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