Concerns that one of the world’s richest oil producing countries is going broke are sweeping through the markets faster than a bush fire.
News has slipped out that Saudi Arabia has written a begging letter to a number of leading banks asking for loans to shore up the economy,
Although no numbers are mentioned in the letters, the Saudis are believed to be looking for a $10 billion bail-out.
The Saudi government has declined to comment on the speculation.
Oil rich Saudi Arabia is one of the world’s largest oil exporters and sits on reserves worth billions of pounds.
$100 billion spending black hole
However, the government ran a £100 billion deficit last year and is starting to buckle under the strain of trying to contain falling oil prices.
The nation has enjoyed years of profits from oil and has huge cash reserves, but these would appear to be running low due to the budget deficit.
The price of oil has tumbled from more than $100 a barrel around 15 months ago to as low as $30 a barrel now.
According to the Organisation of Oil Exporting Countries (OPEC), Saudi Arabia is the world’s largest exporter of oil and has 18% of global reserves underground.
Oil and gas exports make up 50% of the GDP and 85% of export earnings.
Oil exporters under pressure
However, the economy is suffering as producers churn out oil and new producers switch on their pipelines again after years of sanctions and war in Iran and Iraq.
Analysts say the Saudis are effectively mortgaging future oil production to shore up bank and government finances.
Other OPEC countries in the Gulf have also taken out loans to bolster their economies.
Qatar borrowed $5 billion and Oman $1 billion in January 2016.
The governments reportedly wanted more, but banks set interest rates at a high level knowing the countries had nowhere else to go to borrow the money.
Oil companies worldwide are also living with a ‘lower for longer’ regime, expecting oil prices to nestle way below $100 a barrel for at least a decade.
Their solution is to slash jobs, mothball wells, cut exploration and try to hunker down until the glut passes.
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