The Iran war will complicate Saudi Arabia’s push to attract foreign investment, but it could help ease pressure on the kingdom’s finances this year if oil production rises once the conflict is over, according to new analysis.
In one of the first detailed assessments of the war’s impact on the biggest Gulf economy, Monica Malik, chief economist at Abu Dhabi Commercial Bank, said there was scope for OPEC+ to increase output “more meaningfully,” noting that much of the world’s spare capacity is in Saudi Arabia and the UAE.
Higher oil prices and output could offset the current hit to production and help narrow Saudi Arabia’s budget deficit to 3-3.5% of GDP if Brent crude averaged $80 a barrel over the year; last year’s budget shortfall was 5.8% of GDP. If oil averages a more conservative $72, the deficit would come in at 4.2%, Malik estimates. The big caveat: These scenarios assume that the conflict’s duration will be limited, and Gulf crude can start flowing freely again.
