Saudi Arabia enjoys a solid oil boom

This year Saudi Arabia will earn $274,000,000 a day from oil revenues, or a total of $100 billion, according to the latest report from Samba chief economist Brad Bourland.

In 1974 Michael Field wrote his famous book '$100,000,000 a day' which was then the total daily income of Saudi Arabia and Kuwait. Now adjusting for inflation since that time, oil income is still much lower today. But there is an oil boom in the Middle East.

As Brad Bourland explains: 'We are now considering the real possibility that the global oil market is entering a period distinct from the previous 20 years, requiring oil production from Saudi Arabia in a range of eight to 10 million barrels per day over the next many years, versus the six to eight million barrels per day of the past two decades, and at prices ranging from $25-35 a barrel versus $15-25.'

Thus Samba now predicts a nominal growth in GDP of 7.4% in Saudi Arabia in 2004, an $11 billion trade surplus and per capital GDP of $9,700.

This means that oil revenues will be almost double the amount forecast in the budget. Samba reckons this windfall will go to build up foreign assets at the Central Bank and debt reduction. There will not be the wild spending of the 1970's oil boom.

Mr. Bourland is happy to admit that most forecasters got the oil market wrong despite this being one of the most transparent of global markets. He notes that forecasts for Chinese oil consumption proved too pessimistic, and that economic recovery in the industrialized world as well as India and Brazil has transformed the oil demand situation.

This is not a situation that Mr. Bourland thinks will change anytime soon or in a hurry. 'Thus we see a strong possibility that Saudi Arabia may enjoy a higher level of production and higher prices for a prolonged period.'

For Saudi Arabia such economic good news naturally has to be balanced against recent terrorist atrocities. But quite apart from a robust response by law and order agencies, the terrorists now have the full weight of economic history against them. For revolutions never occur at times of economic expansion.

It would appear that Saudi Arabia has a window of opportunity to put its own house in order, eliminate terrorism and adopt moderate reforms to modernize the country. This is certainly a much brighter outlook than the images of terrorist attacks on TV would suggest.