Saudi Arabia is pulling out all the stops to raise cash and fill the hole in its budget created by cheap oil.

It's a huge reversal of fortunes for the Saudis. For years, the kingdom relied on hauling in gobs of oil money to support generous perks to citizens and the kingdom's massive military.



But all that oil money is quickly drying in a world where oil prices have plunged to $40 a barrel from $108 less than two years ago. Saudi oil revenue -- which makes up nearly three-quarters of its total -- plunged 23% last year. The Saudi budget deficit soared to $98 billion last year.

Now the Saudis are desperately trying to replace that oil money with methods that were unthinkable just years ago.

"Saudi Arabia is contending with major economic problems and financial pressure during this era of cheap oil," said Giorgio Cafiero, CEO of Gulf State Analytics

Saudis need a big loan: For the first time in 25 years, Saudi Arabia is in the market for a big foreign loan. The kingdom plans to raise $10 billion from a group of banks that include JPMorgan Chase (JPM) and HSBC (HSBC), according to the Financial Times.

The five-year loan could pave the way for the country to launch its first international bond sale. Last year the Saudis tapped the local bond market for the first time in eight years, raising at least $4 billion.

There is additional pressure on the Saudis given the failure last weekend to reach an agreement to "freeze" oil production at the big summit in Doha. Freezing production would have helped the global oil glut from worsening.

"With the Doha meeting ending in a bust, the pain is set to deepen for the vast majority of sovereign producers," Helima Croft, global head of commodity strategy at Royal Bank of Canada, wrote in a research report.

News of the Saudi loan comes just as President Obama is visiting Saudi Arabia amid rising tensions between the two countries. The Saudis recently threatened to sell off American assets if Congress passes a bill that would allow 9/11 victims to sue foreign governments.

Selling a piece of the crown jewel: Saudi Arabia is even willing to give up a slice of its crown jewel Saudi Aramco. The massive state-owned oil company produces 12% of the world's oil. Aramco is estimated to be worth trillions so even just a small stake sold through an IPO could raise a ton of cash.

Saudi Prince Mohammed bin Salman wants to list Aramco in Saudi Arabia, possibly as early as next year, in a bid to raise cash.


Related: Saudis to take control of largest U.S. refinery


Burning through cash: The vast treasure of cash amassed at the Saudi central bank during the boom years is fast dwindling. The Saudis burned through about $140 billion between the end of 2014 and February. The central bank is still sitting on $592 billion, but the IMF recently warned that even the Saudis could eventually run out of cash.

That's because the Saudi government, which supports a population of nearly 30 million, is still budgeting for far higher oil prices. The Saudi fiscal breakeven oil price is estimated at just over $100 a barrel, according to RBC. That's the second-highest among all OPEC nations, behind only Venezuela and Libya, two countries in deep turmoil.

By comparison, neighboring countries with far smaller populations like Qatar and Kuwait need oil prices in the $45 to $55 range, according to RBC.

"Saudi Arabia has the most at risk" compared with its Gulf peers, Croft wrote.


Related: Saudi Arabia faces 'economic bomb'


Painful spending cuts: Financial stress caused the Saudis to order a 14% spending cut for 2016. That included a 3.6% decline in military spending, a tough pill to swallow given the enormous security challenges in the Middle East.

The Saudis are also cutting back on some of the lavish government subsidies provided to citizens. That resulted in a 50% hike in gas prices and higher prices for water and electricity.

Croft said the Saudi government "increasingly stands alone" in its conviction that there won't be a public backlash to these austerity moves.

"Once the government starts rescinding benefits...the populace in turn may demand a greater say in how they are governed," she wrote.


http://money.cnn.com/2016/04/20/investing/saudi-arabia-raising-cash-cheap-oil/index.html

Same saudi arabia PMB is looking up for help.......Baba God pick up our call......time is going

All the oil dependent economies are feeling the crunch. A 98billion deficit for last year alone.

Angola just took IMF loan to survive.

Lets cut the government some slack. All oil dependent economies must diversify to survive. Some tough policies must be put in place.

d govt was fully aware on of the falling oil price whem they promised to stabilize the internation price of oil.abi na only me hear am ,when this was said?

Iran will be laughing because their major enemy is almost on it knee. I believe they will throw a party when they hear their is protest in Saudi from the citizens.
I believe Iran will do everything possible to strangulate Saudi so that they will become the major voice in their region.
I am waiting and watching to see what Saudi will do next, may be they will increase the price and cost of hajj, to make all the nations that still believe they are holy land pay to keep their economy afloat.

dammy336:
d govt was fully aware on of the falling oil price whem they promised to stabilize the internation price of oil.abi na only me hear am ,when this was said?

There was a brief period that oil was trading at $27, (some "analysts" predicted $20)now it has rallied to $40+

OPEC are hurting presently from the glut but with cooperation & protection of collective interests, we should see a $60 price which will greatly relief the intense pressure these member countries are under...

Bear in mind that there is only so much US can do for Shale oil & against ISIS before throwing in the towel...


http://asia.nikkei.com/Business/Trends/Bankruptcies-continue-in-U.S.-shale-oil-industry

http://www.investopedia.com/articles/investing/102214/oil-and-terror-isis-and-middle-east-economies.asp


http://oilprice.com/Energy/Energy-General/ISIS-Forced-To-Cut-Wages-As-Oil-Revenues-Tank.html

Taking a hard line accusatory stand solves nothing, Nigeria within the past one year has lost over a trillion naira, ALL oil dependent nations are feeling the strain, let alone a mono export economy..... Saudi is lucky, Hajj/Umrah will bridge some gap.


Cc 989900B

modath:



There was a brief period that oil was trading at $27, (some "analysts" predicted $20)now it has rallied to $40+

OPEC are hurting presently from the glut but with cooperation & protection of collective interests, we should see a $60 price which will greatly relief the intense pressure these member countries are under...

Bear in mind that there is only so much US can do for Shale oil & against ISIS before throwing in the towel...


http://asia.nikkei.com/Business/Trends/Bankruptcies-continue-in-U.S.-shale-oil-industry

http://oilprice.com/Energy/Energy-General/ISIS-Forced-To-Cut-Wages-As-Oil-Revenues-Tank.html


Cc 989900B

Right on time Modath, I was just writing an article about why fall in oil prices is actually the lesser evil here. Meanwhile the Saudis/OPEC have the US where they want them to be already, prices can go up now -- it's a double edged sword for us though: we import 40 million litres of refined PMS alone!!!

I was writing the article below:

Frustration: I've been screaming this from forever that we do not consume the 40m litres/day . . . everyone knows that (30% of our PMS is smuggled to neighbouring countries), why the template is still based on 40m litres a day is beyond me, when we have a customs service, and many unemployed youths looking for jobs.

Is it harder/more expensive for the customs service to employ these youths to secure our borders, than paying 'hard-scarce-forex' for 10 million litres to these 'etranger' who don't even respect us, everyday!!!? Or is this a silent agreement between the NNPC and FG and these neighbouring countries?

When I keep hammering that we will not progress or move forward without working refineries and pipelines, it seems like some exaggeration, but it is what it is, because without pipeline vandals and with working refineries, we would have stable power supply and would not need more than 20 million litres of PMS a day, which our refineries in full throttle can match.


20 million litres of PMS (not to mention AGO and DPK) wasted on 'gen' and neighbouring countries everyday in Forex, is equivalent to roughly the same amount of Forex the whole country uses in purchasing rice, palm oil, toothpick, Prada, Gucci, cars, cloths, and e.t.c.

Doing the math: if we can chalk-off silly imports like palm oil, eggs, rice, and some other stuffs, and also chalk-off over 20 million litres of petroleum products', get the present working refineries up to 50-70%, that technically erases almost 50% of our Forex demands!

One stone kills 3 birds: stable electricity breeds production, exports, and more Forex inflow.

Verdict: Coupled with smart monetary policies, the Naira will trade at below N160 to a dollar regardless of oil prices!

arinzest:
All the oil dependent economies are feeling the crunch. A 98billion deficit for last year alone.

Angola just took IMF loan to survive.

Lets cut the government some slack. All oil dependent economies must diversify to survive. Some tough policies must be put in place.

The most sensible comment in this thread. if all these crisis are happening in oil dominated economies are beyond the understanding of people destroying party who should have figure out that prices will eventually collapse and design counter measures then ignoring them seems to be the best option.