Key facts
- Saudi Arabia's budget deficit fell to $9.1 billion in Q2 from $33.5 billion in Q1.
- Oil revenue increased by 28% in Q2 due to higher crude prices.
- Spending decreased by 3.5% in Q2.
- Saudi oil output is below prewar levels due to export disruptions.
- The Kingdom redirected crude to the Red Sea port of Yanbu to achieve higher prices.
Saudi Arabia's quarterly budget deficit significantly narrowed in the second quarter, falling by nearly three-quarters to 34.3 billion riyals ($9.1 billion) from 125.7 billion riyals in the first quarter. This improvement was driven by a 28% increase in oil revenue, a result of higher crude prices, while spending decreased by 3.5%.
The war has negatively impacted Saudi oil production, leading to a nearly 25% contraction in the oil sector and dragging the broader economy down. However, the Kingdom has managed to export reduced volumes at significantly higher prices by redirecting crude through pipelines to the Red Sea port of Yanbu. Brent crude was trading near $90 per barrel on Thursday, up over 47% year-to-date.
Despite the revenue gains, the budget remains unbalanced, with EFG Hermes estimating that Saudi Arabia now requires oil prices near $115 per barrel to cover its expenditures, an increase from approximately $96 last year. Second-quarter spending was still 11% higher than the same period in the previous year. The Kingdom has indicated that some Vision 2030 projects may face delays, reductions, or abandonment if financial conditions do not improve.
The International Monetary Fund (IMF) forecasts that higher oil prices will more than offset lower export volumes, projecting the deficit to narrow to 3.7% of GDP this year and 3.1% in 2027. The situation highlights the complex dynamics of oil economics, where reduced production can lead to increased revenue and a smaller deficit.