Will Oil Slump Cause Saudi Arabia to Abandon its Dollar Peg?

“Government expenditure is a key driver of growth in Saudi Arabia, so a cut in spending will certainly feed through to domestic output and earnings”, Akber Khan, the director of asset management at Doha-based Al Rayan Investment, which manages about $900 million, said by telephone before Saudi Arabia announced its budget. If there is demand, we will respond. “We meet our customers’ demand, there is no longer a limit to production, as long as there is demand, we have the ability to meet demand”, Naimi said.

The Saudi Finance Ministry this week reported total revenue for fiscal year 2015 at $162 billion, an estimated 15 percent decline from budgeted revenues.

With oil at $37 a barrel, down from triple digits previous year, Saudi Arabia isn’t making as much money as it is spending.

Novak said a between supply and demand may occur during the second half of 2016, but added “New production in Iran [post sanctions] may affect the market”.

Jadwa also noted that the oil price used to calculate Saudi Arabia’s oil income in 2016 will be set at United States dollars 40.3 a barrel, down from USD 64.8 a barrel this year.

People in Saudi Arabia came out on social media to express their views on the budget and subsidy cuts.

Saudi Arabia’s Tadawul dropped 3.23 percent following the announcement of the country’s $98B budget deficit.

“OPEC members must reach a consensus in this regard because, economically speaking, every one of them knows that the downward trend in the prices does not benefit anyone”, he said.

The kingdom will cut domestic spending and energy subsidies to maintain its share of the world oil market. The Ministry of Finance confirmed it is “reviewing” a change to government subsidies on energy, water and electricity. In attempting to reduce its reliance on oil, the kingdom is seeking to put an end to the population’s dependence on government handouts, a move that political analysts had considered risky after the 2011 revolts that swept parts of the Middle East.

The cabinet said the increase was in line with global energy prices.

His appearance at the news conference with two other ministers, during which he shared his views on oil prices and market assessment, was seen as a possible signal he could be named oil minister when Naimi, 80, eventually retires.