Plunging oil prices have led Saudi Arabia to start withdrawing billions of pounds from international banks and financial markets to plug a record budget deficit.
Saudi Arabia vies with the USA and Russia as the world’s biggest oil producer – each produces around nine to 10 billion barrels of crude a day.
But as the price of oil has dropped by half in the past year due a glut of oil and falling demand due to the global recession, oil producing countries have seen their revenues collapse.
The USA is more resilient because most of the nation’s production is for internal consumption and is topped up from imports.
Russia has had to raise interest rates and take other economic measures to bolster the economy due to the falling oil prices – and sanctions from the West over annexation of The Crimea and support for rebels fighting in The Ukraine.
Saudi has fewer options than the USA and Russia as the economy is more reliant on oil.
However, the government took the sensible option in the good years of selling oil and banked billions of pounds in investments around the world ready for leaner times.
Now, the government plans to sit out the slump in oil prices without reducing production or costs per barrel.
The worry in Riyadh is cutting production will ultimately lead to losing market share to rivals.
As a result, Saudi has huge foreign currency reserves spread across the world – but mainly in the US and Europe.
The Saudi central bank has seen foreign currency reserves dropped 1.4% to £477 trillion.
According to the country’s central bank, this is the first year reserves have fallen since 2009, when the world was gripped in financial crisis.
In the red
Analysts claim the fall is due to two factors – the strengthening US dollar affecting exchange rates and the government not having enough cash from oil revenues to replenish withdrawals.
“Saudi Arabia has not yet admitted it, but we have no doubt the government is running budget and current accounts in the red,” said a spokesman for one analysts, Capital Economics.
“Many other OPEC countries are pleading with Saudi Arabia to cut oil production, but instead of taking this path, the government has decided to shore up the economy by drawing on currency reserves.
“With the level of reserves Saudi Arabia has to hand, the government can resist calls to cut prices and production for some years.”