At no time since Ibn Saud first consolidated his Arabian conquests into the Kingdom of Saudi Arabia in 1932 has the ruling Saud dynasty faced such an existential threat to its continued rule over the country.
It is true that Saudi Arabia has been able to gain some temporary advantage in key Asian export markets, as its shipments to China more than doubled in April to 2.2 million barrels a day (bpd) and those to India, at 1.1 million bpd, were also the highest in at least three years. This, though, as much as any other factor that might endure, was a product of Saudi slashing its official selling prices (OSPs) for April crude sales to some of the lowest levels in decades, undercutting its rivals, and exactly the same happened again for May crude sales.
Even this very slight victory, though, has already been jeopardised by an indication that the scale of the trouble into which the House of Saud has placed Saudi Arabia is truly monumental. Just last week saw massive economic pressure force the Saudis into increasing the June delivery price for its Arab light crude oil to Asia by US$1.40 per barrel from May, albeit at a discount of US$5.90 to the Oman/Dubai benchmark average. Market expectations were that Saudi would continue to keep OSPs low to hold onto market gains.
Saudi Arabia did this because its finances are in an even worse state now than they were at the end of the Kingdom’s previous attempt to destroy the U.S. shale industry that ran disastrously from 2014 to 2016. Back then, Saudi had a much greater chance of success in destroying the U.S. shale industry than it did this year, for a wide variety of reasons, but even then the effort nearly destroyed the Saudi economy forever.
Back then Saudi had record-high foreign assets reserves of US$737 billion in August 2014, allowing it real room for manoeuvre in sustaining its SAR/US$-currency peg and covering the huge budget deficits that would be caused from the oil price fall caused by overproduction. Despite this relatively positive backdrop to Saudi’s 2014-2016 oil price war against U.S. shale, OPEC member states lost a collective US$450 billion in oil revenues from the lower price environment, according to the IEA. Related: Oil Is Back In Demand As Drivers Return To The Roads
Saudi Arabia itself moved from a budget surplus to a then-record high deficit in 2015 of US$98 billion and spent at least US$250 billion of its foreign exchange reserves over that period that even senior Saudis have said are lost forever. So bad was Saudi Arabia’s economic and political situation back in 2016 that the country’s deputy economic minister, Mohamed Al Tuwaijri, stated unequivocally (and unprecedentedly for a senior Saudi) in October 2016 that: “If we [Saudi Arabia] don’t take any reform measures, and if the global economy stays the same, then we’re doomed to bankruptcy in three to four years.” That is to say, that if Saudi kept overproducing to push oil prices down – just as it did this year, yet again – then it would be bankrupt within three to four years.
On the pure…