Last week, eight OPEC+ countries announced plans to accelerate the phase-out of voluntary oil output cuts by increasing production by 411,000 barrels per day in May. This move, equivalent to three monthly increments, comes as U.S. President Donald Trump imposes tariffs on trading partners, further unsettling global oil markets. At 9:45 AM ET on Friday, Brent crude for June delivery rose by 0.1%, reaching $63.32 per barrel, while WTI crude remained flat at $60.12 per barrel.
This decision signals that Saudi Arabia may be stepping away from its traditional role as OPEC’s swing producer, sending a strong message to countries such as Kazakhstan, the United Arab Emirates (UAE), and Iraq, who have been violating production cuts. The news aligns with previous reports suggesting that Saudi Arabia might be prepared to let go of its unofficial target of $100 per barrel for crude oil prices.
Saudi Arabia, the leader within OPEC+, currently accounts for a significant portion of the group’s production cuts. The kingdom has cut 2 million barrels per day (mb/d) out of the 2.8 mb/d reduction from OPEC members and 3.15 mb/d from OPEC+ as a whole. While the cuts are meant to stabilize the market, Saudi Arabia’s share has been disproportionately large, with only Saudi Arabia and Kuwait maintaining substantial cuts.
However, the impact of these cuts has come at a considerable cost to the kingdom. Saudi Arabia needs an oil price of approximately $96.20 per barrel to balance its national budget, mainly due to the ambitious Vision 2030 initiative. The country has been producing oil at its lowest levels since 2011, with current output at 8.9 million b/d. As a result, the kingdom has been selling less oil at lower prices, leading to a revenue shortfall.
Despite these challenges, Saudi Arabia is in a position to weather the storm. Experts suggest that the country could scale back its Vision 2030 plans, possibly extending the timeline to Vision 2040 or 2050, should oil prices fail to recover. Additionally, Saudi Arabia has alternative funding options, such as utilizing foreign exchange reserves or issuing sovereign debt, to cushion the impact of low oil prices.
Moreover, with the tariffs imposed by the Trump administration, Saudi Arabia may find an opportunity to pivot towards regional manufacturing. The six Gulf Cooperation Council (GCC) countries, including Saudi Arabia, the UAE, Bahrain, Qatar, Kuwait, and Oman, are subject to only a 10% tariff rate. This creates a potential incentive for businesses to shift operations to the GCC region, whether through nearshoring or friendshoring.
Adel Hamaizia, a Gulf expert at the Harvard Belfer Center Middle East Initiative, stated, “As tariffs rise in certain countries, we are likely to see a growing shift of business to the GCC, whether through nearshoring or friendshoring.” Experts, such as Ellen Wald, founder of Transversal Consulting, have urged Saudi Arabia to take advantage of this opportunity by approaching the Trump administration to explore trade deals. Wald suggested that Saudi Arabia could offer to manufacture goods that were previously supplied by China, thereby strengthening its position as a regional manufacturing hub.
Manufacturing is a key pillar of Saudi Arabia’s Vision 2030, and the kingdom has significant advantages in this area. It benefits from cheap energy, vast open spaces, and minimal regulatory constraints, making it an attractive destination for manufacturers looking to relocate operations.
In addition to expanding manufacturing, Saudi Arabia is accelerating its $2.5 trillion mining plans to diversify its economy and reduce dependence on oil. The kingdom is investing in technologies aimed at optimizing oil production and minimizing carbon emissions, while also tapping into its substantial reserves of phosphate, gold, copper, and bauxite. The country’s mining sector is expected to play a crucial role in Saudi Arabia’s long-term economic strategy, with the goal of increasing the industry’s contribution to GDP from $17 billion to $75 billion by 2035.
Last year, Saudi Arabia signed nine major investment deals worth over 35 billion riyals ($9.32 billion) in metals and mining. The kingdom is focused on building domestic supply chains for critical metals, with notable partnerships formed with Indian mining giant Vedanta and China’s Zijin Group. These efforts underscore Saudi Arabia’s commitment to reducing its reliance on oil and strengthening its economy through a diversified portfolio of industries.
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