Following a reduction in output by the world’s largest crude oil exporter to support prices, Saudi Arabia’s economy has reversed course. In October 2023, Saudi Arabia reaffirmed that it will continue to reduce its oil production by one million barrels per day until the end of the year.
The biggest producer of crude oil in the world cut output to support prices, sending Saudi Arabia’s economy into reverse gear.
The country’s official statistics agency announced this week that the third quarter of 2023 saw a 4.5% year-over-year decline in Saudi Arabia’s gross domestic product, the broadest indicator of the country’s economic health. Since the Covid-19 pandemic in 2020, that contraction has been the biggest. The decline would have been even more severe if non-oil activities hadn’t grown by 3.6%.
Even though the nation’s enormous oil sector had been contracting for months, the economy as a whole managed to grow by 1.2% in the second quarter of this year.
The third quarter saw the largest year-over-year decline in the kingdom’s oil sector since at least 2011 as a result of the voluntary reductions in oil production intended to support global prices.
In July, Saudi Arabia increased its oil production to nine million barrels per day. The largest member of the OPEC+ alliance teamed up with Russia to impose supply restrictions in response to indications that demand was waning due to a slowing global economy.
The kingdom’s GDP grew by 8.7% last year, but the IMF projects that it will only grow by 0.8% in 2023.
With a gradual unwind in early 2024, we expect [oil] production to remain low through the end of this year, according to a note released on Friday by Oxford Economics analysts.
Ralf Wiegert, S&P Global Market Intelligence’s Economics Director for the Middle East and North Africa, stated that Saudi Arabia’s oil cuts were intended to stabilize the world’s oil markets.
According to Wiegert, “risks of a global growth slowdown were weighing on oil markets in the second quarter [of] 2023”. In order to account for the recessionary risks to oil demand, the Saudi leadership made the decision to remove some supply from the market.
Wiegert stated that the Saudi economy’s potential to recover will be primarily determined by how gradually production cuts are implemented, with an end date of 2025. He also predicted that Saudi Arabia’s growth would remain weak in 2024, at 1.1%.
The economy of the United Arab Emirates has expanded despite economic pressure from reduced oil production in other Gulf states.
The UAE’s economy minister reported this week that the non-oil sector’s growth contributed to the country’s 3.7% GDP growth in the first half of the year.
S&P recently released PMI numbers that show non-oil revenues are expanding at their fastest rate in four years.
In the upcoming years, we will be able to see the impact of the reduction in oil production not only on Saudia Arab but also on the entire world.