As tensions in the Middle East escalate, international oil prices have risen recently, with Brent crude currently trading at $74.85 per barrel. However, despite the increase in oil prices, most Gulf Cooperation Council (GCC) countries are still experiencing widening budget deficits because the current prices are far below what these countries need to balance their budgets. According to the International Monetary Fund (IMF), major oil-producing countries like Saudi Arabia need oil prices to exceed $96 per barrel to cover budget shortfalls. This is primarily influenced by Saudi Arabia's "Vision 2030" plan.
Despite Saudi Arabia's significant progress in promoting economic diversification, with non-oil revenue now accounting for half of the country's GDP, the enormity of infrastructure projects and plans to host global events mean the country still heavily relies on oil revenue. Last year, Saudi Arabia saw substantial growth in investments in non-oil sectors, with private sector investments increasing by 57%, and industries like arts, entertainment, and services export achieving triple-digit growth. However, the IMF points out that the fiscal expenditure required for rapid economic transformation is enormous, and Saudi Arabia needs oil prices to be more than $20 higher than current levels to maintain a balanced budget.
Not only is Saudi Arabia facing fiscal pressure, but other Gulf countries like Bahrain and Iraq are also challenged by low oil prices. The IMF estimates that these countries need oil prices of $125.7 and $93.8 per barrel, respectively, to achieve budget balance. Although the UAE and Oman are expected to see surpluses in the coming years, overall, low oil prices are likely to have a more significant impact on the economic stability of the entire Gulf region.
With the uncertainty in the international oil markets, the fiscal conditions of Gulf countries will continue to be under pressure, and future economic planning may need to be adjusted.
