How Long Saudi Can Endure $30 Per Barrel Oil Price And What Strategy It has
The oil crisis has brought the oil price touching $30 per barrel, which Saudi called as irrational. The country seems unable to endure any longer and intending to expand its economy through foreign investment.
Since the oil price stays low, Saudi Arabia started to untie its strict regulations in economy, according to the International Business Times. The Saudi Arabian General Investment Authority (SAGIA) has mentioned that the country plans to encourage more foreign investment to help fixing the economic collapse.
The Saudi Arabian General Investment Authority governor, Abdullatif Al-Othman, said, "SAIGA welcomed feedback from any investor on any regulation that will enable them to expand and grow their investment in Saudi Arabia. We would love anyone to say look, if you change this law or regulation, I am coming here with these investments. Any regulation."
The large oil production in the Middle Eastern, including Saudi Arabia, has led to the world oil oversupply, whereas the demand in the developing countries has been declining. This imbalance has contributed to the falling price of oil during these two years. In early January, the price hit lower than $30, which is the lowest in 12 years.
As a country, Saudi Arabia depends highly on oil exports. Approximately 75 percent of the national budget is taken from oil incomes. Economic diversification is what industry experts suggest to Saudi Arabia, seeing the oil price issues seem to continue longer.
A report from McKinsey consulting group, which was launched in December 2015, stated, "After a surge in prosperity over the past decade fueled by rising oil prices, Saudi Arabia's economy is at an inflection point. We see a real opportunity for the country to inject new dynamism into its economy through a productivity- and investment-led transformation."
As mentioned in the Telegraph, head of the Middle East department at the IMF, Masood Ahmed also suggested the same statement. He said that Saudi Arabia will have to change its economic strategy not to depend on oil revenues. He pointed out that 80 percent of the government's assets come from the oil returns.
Mr Ahmed stated, "This will have to be part of a multi-year adjustment process." He continued, "There will have to be a major transformation of the Saudi economy. It is necessary and it is going to be difficult, but it is a challenge which I think the authorities have clearly laid out."
Meanwhile, CNBC has reported, in regards with OPEC proposal on oil production cuts up to 5 percent, that according to unnamed source, Saudi Arabia is willing to cooperate with the other oil producers in order to maintain the global oil market.
Saudi Arabia has been urged by the other cartels to cut oil production, instead of tolerating the oil price to plunge into the rate that will shut down rivals, such as U.S. shale producers. Experts were still doubtful if it was Saudi Arabia who has agreed to cut 5 percent production. However, last Friday this has rebounded the oil price for 25 percent from the lowest price earlier in January.