Coronavirus, oil war and a Hajj in doubt: Saudia Arabia’s triple whammy - Bulletin Mail

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In March, Saudi Arabia told Muslims around the world not to rush to buy plane tickets for the Hajj pilgrimage to Mecca. The closure of Islam’s holiest sites, along with the banning of Muslim public prayer and the closure of mosques, has made it clear how powerful the coronavirus religious blow has been to Muslims.

It is too early to know whether the scourge planned for the end of July this year will be lifted or whether Saudi Arabia will allow all or some of the 2 million pilgrims to come and fulfill one of their basic Islamic obligations in the post-coronary period.

This is not just an epidemiological dilemma. Its financial impact is also enormous. Pilgrimages during the ship season and other periodic events during the year have earned an average of $ 16 billion a year in recent years – about 5 percent of Saudi Arabia’s gross domestic product. Thousands of Saudis, including workers, hoteliers, business owners, guides, drivers, supervisors and maintenance workers, rely on the Hajj season as a critical source of income – and tens of thousands of people elsewhere in the Islamic world also earn a living from the pilgrimage.

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Saudi Arabia has announced that it will diversify its sources of revenue as part of its Saudi Vision 2030 plan, in an effort to reduce its dependence on oil revenues, but now it could shatter its dream if the scatter does not take place this year.

This is not the only misfortune that the pandemic has hit the kingdom. Saudi Finance Minister Mohammed al-Jadaan told Saudi TV station Al Arabiya that in order to continue providing basic services to the country’s citizens, a seat belt must be fastened for at least next year. This means reducing non-essential costs. In addition, Saudi Arabia has to borrow about $ 50 billion from international institutional lenders. This is almost twice as much as was planned before the coronavirus outbreak, and it is projected that revenues could more than halve.

Jadaan calmed things down, promising that the bank’s liquidity is not in jeopardy and customers’ deposits are guaranteed. And when it comes to foreign exchange reserves, even if they have declined due to huge investments in projects that are part of the vision plan for the next decade, the reserves still offer long-term easing of current expenditures. But Jadan could not explain what he meant when he talked about cutting insignificant costs.

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Will the ambitious construction of the futuristic city of Neom, which crosses the borders of three countries – Saudi Arabia, Egypt and Jordan – be put on hold? Are investments in the entertainment industry forced to wait for healthier times? Perhaps Saudi Arabia may also decide that the war in Yemen is an unnecessary expense that should best be ended as soon as possible.

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And the war in Yemen is not the only huge force for Saudi Arabia’s treasury. Saudi money is also linked to the country’s oil price war with Russia, which has led to a free fall in world oil prices.

Nothing is missing from the ultimatum

Reuters recently revealed a phone conversation between US President Donald Trump and Saudi Crown Prince Mohammed bin Salman on April 2, in which Trump made it clear to the prince that if OPEC, an organization of oil-exporting countries, could not decide on cuts for oil production by its members, Trump would be prevent legislators from passing legislation to remove the U.S. military from the kingdom, “as Reuters reported, attributing the information to four sources.

It was the ultimate ultimatum, and within 10 days, the Russians and Saudis reached an agreement to reduce oil production by 10 million barrels a day. But despite these perceptions, the oil war has not abated. Global markets still have oil gluten. Oil tank farms are full, oil tankers have been rented to store the surplus oil produced, and the revenues of oil-producing countries are evaporating.

Saudi Arabian Energy Minister, Prince Abdulaziz bin Salman and Russian Energy Minister Alexander Novak at a meeting in Vienna on 6 December 2019. Leonhard Fueger / Reuters

Trump’s contribution to the oil war has so far been limited to a promise that the United States will reduce the amount of oil it produces – without giving details of how much oil and for how long.

Russia is not Saudi Arabia

Russia was embroiled in a war to lower oil prices to make American shale oil production unprofitable, a source of oil that freed the United States from its dependence on imported oil. But the Russians were trapped in their own cage.

Huge losses damaged its foreign exchange reserves. Shrinking markets due to the coronavir pandemic dampened the momentum that Russia had enjoyed in gaining control of its new market share, and Russia failed to force the Saudis.

Saudis, on the other hand, still have impressive foreign exchange reserves and the ability to keep their spending plans flexible. Russia may only need $ 45 a barrel of oil to balance its budget, while the Saudis need $ 75 to $ 80 a barrel, but the difference between the two countries is that Saudi Arabia can cope with its much lower price. the ability to suspend or even dismantle future plans in which it has already contributed to the budget.

In other words, if the construction of the city of the future or cultural investment is postponed for a few years, it would not be a major disaster. Saudi Arabia could still afford to properly meet its continuing needs. And if the Saudis decided to withdraw from Yemen, they could save tens of billions of dollars more without being dramatically affected by falling oil prices.

Russia does not have this flexibility. It has no major projects that could be frozen to save money, and regular running costs require an oil price of $ 45 a barrel.

The coronavirus pandemic has dictated a new oil strategy in which the American administration is even prepared to test the country’s historic relations with Saudi Arabia as part of Trump’s oil diplomacy policy.

It is too early to panic over a possible divide between the two long-standing allies, but the fact that Trump was linking oil prices to the US military presence in Saudi Arabia may have forced the Saudis to reconsider their rights. the next steps – and the nature of their alliance with Washington.

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Coronavirus, oil war and a Hajj in doubt: Saudia Arabia’s triple whammy - Bulletin Mail
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