By:Zawya

With global oil prices down to a four-year low last week, Saudi Arabia--which depends heavily on its oil revenues to balance its budget and to finance its massive economic transformation plan--could be forced to tighten fiscal policy further or seek recourse in the debt market; alternatively, it may even look to raise new taxes.

The prospect of a US–China trade war and its gloomy consequences on the global economy, in addition to the unexpected output increase by OPEC+ members in the first weeks of April, have driven oil prices down. Additionally, the IEA has lowered oil demand growth forecasts substantially for 2025 and 2026. Brent, the key benchmark for Middle East producers, and the US West Texas Intermediate crude have both lost around $10 since the beginning of the month. Brent has since recovered slightly and is trading around $66 per barrel on Thursday.

Goldman Sachs now expects Brent to average $63 for the remainder of 2025 while BMI has forecast the benchmark at $68.

Also weighing on the government’s finances is state-backed energy producer Saudi Arabian Oil Company’s guidance for lower dividend payment of about $85 billion in 2025 compared with $124 billion last year.

Saudi Arabia needs oil at over $90 per barrel to balance its books, according to the IMF. While the government already runs both current and fiscal account deficits, Fitch Ratings expects the fiscal deficit to widen to 4.1% of GDP in 2025 based on Brent at an average $70 and the lower dividend from Aramco.

All else being equal, “a $10 per barrel drop in the oil price would add around 3 percentage points to the budget deficit”, said Paul Gamble, Senior Director, Sovereigns, at Fitch Ratings.

Edward Bell, Acting Group Head of Research and Chief Economist at Dubai-based Emirates NBD, said: “Prior to the sell-off that started in April we had already been projecting a fiscal deficit for Saudi Arabia in 2025 and with oil prices set to hold at lower levels for the rest of this year we now expect that the fiscal deficit will widen.”