Mohammad al-Sabban says Riyadh has enough currency reserves to ride out long-term crisis and low prices may even benefit world’s biggest exporter
A former adviser to Saudi Arabia has said the country can withstand eight years or more of low oil prices as tensions over the price slump simmered between the world’s biggest oil exporter and Iran.
Mohammad al-Sabban told the BBC that Saudi Arabia was concerned about the falling oil price but its cash reserves and planned budget cuts meant it could cope with a long period of depressed prices.
“Saudi Arabia can sustain these low oil prices for at least eight years. First, we have huge financial reserves of about 3tn Saudi riyals (£527bn). Second, Saudi Arabia is embarking now on rationalising its expenditure, trying to take all the fat out of the budget,” Sabban told the BBC’s World Business Report. “I think [Saudi Arabia] is worried but we [have to] wait for the full medicine that we have prescribed for ourself to take its course.”
Without cuts in spending on infrastructure, sports stadiums and new cities, Saudi Arabia can withstand low oil prices for at least four years, said Sabban, a former adviser to the Saudi minister for petroleum. He also suggested that lower oil prices could have long-term benefits for Saudi Arabia.
Saudi Arabia has refused to cut production despite a more than 50% fall in the price of oil since last summer.
“To shorten the cycle, you need to allow prices to go as low as possible to see those marginal producers move out of the market on the one hand, and also if there is any increase in demand that will be welcomed.”
His comments were a further signal that Saudi Arabia was prepared to use its financial strength to ride out depressed oil prices now piling pressure on other producers, including Iran, which also faces western sanctions over its nuclear programme.
A meeting between Saudi Arabia’s foreign minister and his Iranian counterpart was postponed partly because of disagreement over the falling oil price, Bloomberg reported. Saudi Arabia and other producers in the Persian Gulf “are expected to make efforts to stop the fall in oil prices and not let the decline have a lasting impact on oil-producing nations’ economies”, said Hossein Amir-Abdollahian, Iran’s deputy foreign minister for Arab and African affairs.
Tensions have been building between Iran and other Arab oil states over what Iran has said is an international plot to weaken Tehran by forcing down the price of oil. Saudi Arabia and Kuwait opposed Iran’s unsuccessful effort to persuade Opec to cut output at its last meeting in November.
The price of crude oil has more than halved since June 2014 because demand has weakened, particularly from China, while the US shale boom has increased global production. Brent crude slipped back below $50 a barrel on Monday, falling 1.8% to $49.29, as traders expected gloomy economic growth figures from China on Tuesday and a bond-buying programme by the European Central Bank on Thursday aimed at stimulating the eurozone economy.