OPEC+ is seeking to accelerate its oil production increase by adding 411,000 barrels per day (bpd) in May. Saudi Arabia is facing budget pressures, requiring a price of $96.20 per barrel to break even due to Vision 2030 spending. Saudi Arabia aims to take advantage of low tariffs in the United States to grow manufacturing and invest heavily in mining to boost non-oil revenues. Last week, eight OPEC+ countries revealed their plans to proceed with the plan to end voluntary oil production cuts, increasing production by 411,000 bpd in May, equivalent to three monthly increases.
This announcement of the accelerated cuts comes as US President Donald Trump announced tariffs on his trading partners, exacerbating the shock to oil markets. Brent crude for June delivery rose 0.1% to $63.32 a barrel at 9:45 a.m. ET on Friday, while West Texas Intermediate crude settled at $60.12 a barrel. This move confirms previous rumors that Saudi Arabia may be ready to abandon its traditional role as OPEC’s swing producer, as it looks to make a strong statement against production cut violators such as Kazakhstan, the United Arab Emirates, and Iraq.
Last September, the Financial Times reported that Saudi Arabia was ready to abandon its informal $100-a-barrel crude price target in preparation for increasing its production, effectively signaling its acceptance of a prolonged period of lower oil prices. Saudi Arabia currently contributes 2 million barrels per day of the 2.8 million barrels per day of OPEC production cuts and 3.15 million barrels per day of OPEC+.
A significant portion of the production decline among other OPEC+ members is not voluntary.
Saudi Arabia’s contribution is double that of the entire group, with the Kingdom and Kuwait currently cutting production by double-digit percentages. In fact, a significant portion of the production decline among other OPEC+ members is not voluntary, but rather reflects their inability to meet their quotas. Related: Turkey and Pakistan Explore the World’s Fourth-Largest Oil and Gas Reservoir. However, flooding the markets with more oil comes at a steep cost for OPEC’s largest producer.
According to the International Monetary Fund, Saudi Arabia, the largest economy in the Gulf Cooperation Council (GCC), needs an oil price of $96.20 per barrel to balance its budget, largely thanks to Mohammed bin Salman’s ambitious Vision 2030. The situation is made worse by the fact that the oil-rich kingdom has borne the brunt of OPEC+ production cuts over the past few years. The Kingdom is currently pumping 8.9 million barrels per day, its lowest level since 2011.
In effect, Saudi Arabia is selling less oil at lower prices, exacerbating its revenue shortfall. However, the Saudis can still withstand some pressure on oil markets. As noted, Saudi Arabia could simply rein in Crown Prince Mohammed bin Salman’s Vision 2030 economic plan, perhaps transforming it into Vision 2040 or even Vision 2050 if oil markets refuse to cooperate. Furthermore, Saudi Arabia has sufficient alternative financing options to weather the period of low prices, including tapping into foreign exchange reserves or issuing sovereign bonds.
Now, experts have indicated that Saudi Arabia may also benefit from the lower tariffs imposed by Trump on the Gulf Cooperation Council (GCC) countries, becoming a regional manufacturing powerhouse. All six GCC countries—Saudi Arabia, the UAE, Bahrain, Qatar, Kuwait, and Oman—will pay only 10% tariffs. “With tariffs rising in some countries
what has China been offering you?
We are likely to see an increasing shift of business to the GCC, whether through close relocation or relocation to friendly countries,” said an economic expert.
Saudi Arabia should send its trade representatives to the Trump administration now to ask: ‘What has China been offering you?’ Tell us what it is, and we will implement it in Saudi Arabia and offer you a great business deal.’ Incidentally, manufacturing is part of Vision 2030. The oil giant has a significant advantage here: unlike Europe, Saudi Arabia has abundant cheap energy, vast open spaces, and minimal regulation.
Moreover, Saudi Arabia is accelerating its $2.5 trillion mining plans to diversify its economy and reduce its dependence on oil, while simultaneously investing in technologies to improve oil production and reduce carbon emissions. Mining now plays a pivotal role in Riyadh’s strategy to reduce dependence on oil, as the kingdom looks to exploit its large reserves of phosphates, gold, copper, and bauxite. Last year, Saudi Arabia’s Minister of Mining, Bandar Alkhorayef, revealed that the kingdom’s potential reserves had grown by nearly 90% from $1.3 trillion, the figure projected eight years ago, to $2.5 trillion.
Saudi Arabia has set a target of increasing the mining sector’s contribution to GDP from $17 billion to $75 billion by 2020. 2035. Last year, the Kingdom signed nine investment deals in the metals and mining sector worth more than SAR 35 billion (US$9.32 billion), as part of its efforts to build domestic supply chains for basic metals. The Global Supply Chain Resilience Initiative revealed these deals with Indian mining conglomerate Vedanta and China’s Zijin Group.
