Will Saudi Arabia run out of money? : “they talk the talk, but can they walk the walk?”

Abstract

We examine when and if Saudi Arabia run out of money in order to predict if Saudi Arabia will change their oil policy due to the low oil price we are facing today. This is done by running different static analyses, time series analysis and an analysis on the effects of cutting production based on elasticity of supply. We find that Saudi Arabia run out of money if they continue without financial and strategic adjustments. However, our findings show that other analysts overestimate when Saudi Arabia run out of money, since they do not account for return on their foreign reserves. Furthermore, we find that Saudi Arabia will decrease the possibility of running out of money as long as they introduce a stricter budget policy. Lastly, we find that Saudi Arabia has something to gain from reducing their production. However, exclusively focusing on production cuts will not solve the initial problem with running out of money. Therefore, we find that Saudi Arabia will have their primary focus on adjusting expenditures, and production cuts will only be used as a secondary measure. We conclude that Saudi Arabia will not run out of money as they will adjust their expenditures and tighten their budget policies. We also believe that Saudi Arabia will try to delay the usage of production cuts as long as possible. Our findings indicate that the oversupply of oil will continue and that we will observe a persisting low oil price.