Saudi Arabia is a super oil-producing country. It is not only the world's largest oil-exporting country, but also has the lowest oil production cost in the world, which is about $10 per barrel. When about 75% of the country's fiscal revenue comes from oil sales, this is a big deal.

For some time, its fiscal breakeven oil price (the oil price required for its budget to balance) has been quite comfortable.

However, as Saudi Arabia has launched massive spending projects to achieve its 2030 vision, aiming to modernize its economy and diversify its sources of income to reduce its dependence on oil, this situation is changing. Over time, Saudi Arabia's projected breakeven oil price is expected to increase, and the country's deficit is also widening.

In May 2023, the International Monetary Fund (IMF) projected Saudi Arabia's breakeven oil price to be $80.90 per barrel, which has put the country back into a fiscal deficit after seeing a surplus in the past ten years. The fund's latest forecast in April 2024 puts that figure at $96.20, an increase of about 19% from the previous year, and about 32% higher than the Brent crude spot price of around $73 on Thursday afternoon. Li-Chen Sim, a non-resident scholar at the Washington Institute for Near East Policy, said,

"At least until 2030, Saudi Arabia will have huge budgetary needs as it needs to show significant results in key projects of the 2030 vision and prepare for major sports and cultural events such as the 2034 World Cup and the 2030 Expo. All of this is happening against the backdrop of expected increases in oil supply from the United States, Guyana, Brazil, Canada, and even the United Arab Emirates, as well as potential softening of growth in oil consumption in Asia, which means that Saudi Arabia's fiscal breakeven oil price could rise to around $100."

She added that all of this does not include the domestic spending needs of Saudi Arabia's giant sovereign wealth fund, which is the driving force behind multi-trillion-dollar projects like NEOM. Nomura Asset Management cited forecasts from foreign media, setting Saudi Arabia's breakeven oil price for this year (including expenditures from the Saudi Public Investment Fund) at $112 per barrel.

A report on Saudi Arabia released by Nomura on September 2nd states, "Saudi Arabia is wealthy, and government spending has risen rapidly over the past decade, but it must operate within fiscal parameters like other countries."

The report also states that important economic indicators, such as oil production and prices, are now sending warning signals. The global economic slowdown in the face of supply uncertainty may hinder the prospects of the hydrocarbon economy.

Is the breakeven oil price really important?

Nevertheless, some economists and market analysts believe that the fiscal breakeven price is not as important as people imagine. For Saudi Arabia, there are multiple options for managing deficits and less-than-ideal oil prices.

"The reality is that countries have been running deficits all along, so for me, the idea that Saudi Arabia needs an oil price of $112 per barrel or whatever the number is, doesn't really reflect the current situation," said an energy analyst focusing on Saudi Arabia.

This analyst said in an interview, "For Saudi Arabia, they have a great ability to take on more debt if they want to...deficits are not a problem for them."

Saudi Arabia also has strong foreign exchange reserves, which reached a 20-month high of $452.8 billion in July, and has successfully issued bonds, raising $12 billion from the debt market so far this year. According to energy analysts, the country's oil revenue will increase by 2025 when the OPEC+ production cuts, largely borne by Saudi Arabia, expire.

Insiders say, "From this perspective, they are also in a relatively favorable position."

Li-Chen Sim said that Saudi Arabia's public debt has increased from around 3% of its GDP in the 2010s to 24% today, which is a huge increase. However, by international standards, it is still relatively low. For example, the average public debt of EU countries is 82%, and the U.S. in 2023 is 123%.

Saudi Arabia has relatively low levels of debt and high credit ratings, making it easier for them to take on more debt when needed.

Saudi Arabia has also implemented a series of reform measures to promote and reduce foreign investment risks, as well as diversify its sources of income. Despite the country's economy contracting over the past four quarters, non-oil economic activity grew by 4.4% year-on-year in the second quarter, an increase of 3.4% compared to the previous quarter.

A Nomura report states, 'The good news is that the Saudi economy is developing along its diversification trajectory and has already absorbed significant reductions in subsidies and higher value-added taxes, while creating a large number of job opportunities.'

The report goes on to say that while Saudi Arabia 'still lacks the required scale of foreign direct investment', the 'newly approved investment law will bring it closer to achieving the goal of establishing a larger non-oil sector'.

However, there are still risks, especially if the demand for oil from major consumer countries continues to remain weak and non-OPEC+ countries continue to increase oil supply. Li-Chen Sim says these risks are completely beyond Saudi Arabia's control. She adds, 'Regarding the first point, the biggest danger is a trade war, which could lead to a slowdown in global economic growth and a decrease in demand for oil.'

"On the first point, the biggest danger is a trade war, which could lead to a slowdown in global economic growth and a decrease in demand for oil."