In an opinion piece in Foreign Policy magazine, a former advisor to President Barack Obama and professor at Columbia University says it is likely that Saudi Arabia will emerge from the Coronavirus pandemic “stronger, both economically and geopolitically” and that its bold moves in oil markets created a win for the Kingdom.
“Only a few weeks ago, the outlook for Saudi Arabia seemed bleak. But looking out a few years, it’s difficult to see the kingdom in anything other than a strengthened position,” Jason Bordoff, a former senior director on the staff of the U.S. National Security Council and special assistant to President Barack Obama, and professor of professional practice in international and public affairs and the founding director of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs wrote for the Washington, D.C.-based magazine.
Crown Prince Mohammed bin Salman.
“[U]nlike most other oil producers, Saudi Arabia has not only plump fiscal reserves but also the demonstrated capacity to borrow. On April 22, the finance minister announced the kingdom could borrow as much as $58 billion in 2020. Compared to most other economies, it has a relatively low debt-to-GDP ratio: 24 percent as of the end of 2019, although lately that figure has been rising. The finance minister also said Saudi Arabia would draw down up to $32 billion from its fiscal reserves. With $474 billion held by the central bank in foreign exchange reserves, Saudi Arabia remains comfortably above the level of around $300 billion, which many consider the minimum to defend its currency, the riyal, which is pegged to the dollar.”
Once the oil market stabilizes and economies are able to open again, Saudi Arabia will end up with higher oil revenues and a bigger share of the oil market, Bordoff argues.
“The current oil bust lays the groundwork for a price boom in the years ahead—and burgeoning revenues for Saudi Arabia. While the outlook for future oil demand is highly uncertain, once you look beyond the immediate crisis, demand is likely to grow faster than supply.”
In addition to being well-positioned in oil markets, Saudi Arabia has strengthened its geopolitical position, Bordoff argues. When oil markets were in free fall and after policymakers tried other remedies, “calling Riyadh was the only real option available to policymakers at the end of the day—as it has long been.”
