Saudi Arabia's Trillion Dollar Gamble Is It About To Come Crashing Down?!

The Game's Afoot... And It's Dripping Oil!

The financial markets Watson are seldom as elementary as the dear newspapers would have us believe. A recent report suggests a rather precarious predicament for the Kingdom of Saudi Arabia. It appears their ambitious Vision 2030 a scheme to transform the economy away from the oily black stuff may be running into a spot of bother much like a hound straying onto a bog. Goldman Sachs no less has raised concerns about the Kingdom's budget deficit potentially doubling due to plummeting oil prices. As I always say 'It has long been an axiom of mine that the little things are infinitely the most important.' And in this case 'little' adjustments in barrel prices lead to gigantic financial headaches.

A Kingdom's Ransom: Vision 2030 Under the Microscope

Vision 2030 they call it – a bold plan to modernize the Saudi economy including the futuristic city of Neom a project grander than my Baker Street lodgings even if one were to include Mrs. Hudson's collection of dust bunnies. But such grandiose designs costing in the trillions require shall we say rather deep pockets? The Saudis need oil above $90 a barrel to balance their books according to the IMF a figure seemingly as elusive as a sober hansom cab driver on a Saturday night. And with Goldman Sachs forecasting oil at $62 a barrel well one doesn't need to be a consulting detective to deduce the consequences.

Deficit Shenanigans: More Borrowing Less Spending?

The specter of a doubled deficit – from a comfortable $30 35 billion to a rather alarming $70 75 billion – looms large. What pray tell is a kingdom to do? More borrowing cutbacks asset sales... it all smacks of financial juggling of the most precarious kind. Mr. Soussa of Goldman Sachs suggests these measures will impact domestic and international financial conditions. A rather understated pronouncement wouldn't you agree? It's like saying Moriarty had a 'slight' tendency towards mischief.

Debt Taxes and Aramco: The Saudi Balancing Act

While Saudi Arabia's debt to GDP ratio is lower than many Western nations the markets may not be so keen on absorbing a $75 billion debt issuance. Other remedies are on the table like cutting capital expenditure (Neom's hyper loops may have to wait) raising taxes (a move as popular as a pea souper fog in London) or selling off more of their crown jewels like Saudi Aramco. A fascinating conundrum! It reminds me of a complex cipher I once cracked involving a missing duke and a parrot with a penchant for opera.

Credit Ratings and Foreign Reserves: A Silver Lining?

Fear not dear readers for all is not gloom and doom. Saudi Arabia boasts a solid credit rating and substantial foreign currency reserves. These factors combined with reforms to attract foreign investment offer a glimmer of hope. As S & P Global notes these efforts 'will continue to improve Saudi Arabia's economic resilience.' So while the kingdom may be facing a stiff headwind it's hardly a financial shipwreck. It's more like a particularly challenging game of whist.

No Crisis Just Choices: The Kingdom's Next Move

Ultimately the situation is not a crisis according to Mr. Soussa. It's merely a matter of choosing the least unpleasant options. Will they trim the sails of Vision 2030? Will they tap the markets for more funds? Will they unleash a wave of asset sales? Only time will tell. But as I often remind Watson 'Data! Data! Data! I can’t make bricks without clay!' And in this case the data suggests that the Saudi saga is far from over. The game as they say is afoot... and still being played!