Complex Made Simple

Saudi is pumping oil, but it can’t print enough money for its monster plans

Saudi oil production is at around 10 million barrels per day (bpd), exporting about $7m bpd and at $71 a barrel Brent crude, that’s quite a neat sum at about $500m per day.

Rising crude prices to an expected $80 also bodes well for the Kingdom’s development plans.

Saudi Arabia’s Public Investment Fund (PIF) had around $230 billion worth of assets under management (AUM), when PIF MD Yasir al-Rumayyan told Bloomberg Television late last year “We’re targeting returns of between 4% and 12% by 2025-2030.”

Today PIF has about$250bn in AUM.

The biggest oil company in the world, Saudi ARAMCO, turned over net income of $33.8 bn in H1 last year, according to Bloomberg.

Yet, all of these combined returns don’t come even close to meeting Saudi’s announced plans for mega projects around the kingdom.

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Deep pockets?

According to, a prominent oil industry site, Saudi has been headlining in the news on the strength of announced projects like a $500bn smart city (NEOM), and a  $200-billion solar project, the  world’s largest, a plan hatched between the PIF and SoftBank Group Corp. of Japan for 200 gigawatts (GW) by 2030.

“The truth, however, may be that it can’t afford them even with the Aramco listing (potential $100bn sale), and though the kingdom can’t build these projects on its own, it is likely to fork at least half these amounts,” said the site.

“NEOM and the SoftBank deal alone come in at $700bn. Add to this a $10bn deal with Egypt for another smart city, the $44bn refinery deal with three Indian companies, and a couple of smaller projects: a $7bn refinery in Malaysia and a $5bn petrochemicals complex in Saudi Arabia, the bottom line of this selection comes to: $766bn.”

Riyadh’s 50% participation in these megaprojects comes out to $383 billion. So can it afford it?

Saudi did announce that its target oil price is for $80 a barrel of oil before a full frontal attack on large projects, a price target that may or may not happen, depending on regional geopolitics, and global demand and supply criteria.

“Meanwhile, the 2018 Saudi budget features a deficit of $52 billion and some observers believe the Kingdom is stretching itself too thin with all its ambitious reform plans,” said

“Adding all revenue streams reaches $350bn, or $33 bn short of the first assumption about the six abovementioned investments that Saudi Arabia has committed to make.”

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 Other Saudi development commitments

According to the BNC Network, a digital intelligence platform for analysing construction markets, Saudi has top mega ongoing projects and others in the plans.

These include Al Faisaliyah Project, a $25bn development in the west coast of Mecca, building  some 1 million housing units, for 6.5 million people.

The $21.4bn Grand Mosque Expansion proejct set to be completed mid 2018.

Dahiyat al Fursan is a $20bn, 2020 project, aimed at building 100,000 homes.

Also, Saudi invested $2.7 billion into new entertainment projects. last year, after the PIF created a company to invest in the sector and do deals with strategic partners, starting with an entertainment complex set to be launch by 2019, the official Saudi Press Agency said.

“By the end of 2030, the company’s projects aim to serve more than 50 million visitors annually and create more than 22,000 jobs in the Kingdom, which will contribute around $2 billion to the GDP,” the agency said.

The first phase of the project, located south west of the capital Riyadh, will open by 2022 and include a Six Flags  theme park as one of the main attractions.

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Cost of conflicts

The Washigton Post reported today that Saudi said it is in discussions with the US about sending troops to Syria as the Trump administration seeks  to wind down its own military presence there.

Saudi Foreign Minister Adel al-Jubeir said the deliberations on what type of force needs to remain in eastern Syria and where that force would come from are “ongoing.”

“The Trump administration has said it is trying to persuade countries in the Persian Gulf to pick up the financial and military burden of stabilization as it draws down U.S. forces,” said the paper.

 The US has approximately 2,000 U.S. troops there, according to the US daily.

“In a telephone conversation late last year, Trump asked Saudi King Salman for $4 billion to pay for stabilization efforts in Syria,” reported the Washington Post.

The Saudi government set aside  $56bn  for military spending in 2018 budget according to Bloomberg.

The Yemeni war costs Saudi Arabia at least $5-6 billion a month, according to the Brookings institute.

Saudi King Salman told leaders from across the 22-member Arab League last weekend that Iran was to blame for instability and meddling in the region and said Yemeni rebel Houthis, backed by Iran, had fired 116 missiles at the kingdom since Saudi Arabia went to war in Yemen three years ago.