Geopolitics and Saudi Arabia’s cash flow

A map showing the challenging geopolitical situation of the Persian Gulf’s most powerful state
Saudi Arabia finds itself strategically encircled by Iranian influence in Yemen to the south, Iraq and Syria to the north and Iran to its east (source: macpixxel for GIS)
  • Saudi Arabia finds itself strategically and geographically encircled by Iranian influence
  • The Gulf states have accumulated crushing budgetary deficits due to low crude oil prices and continued high spending
  • No longer able to use their checkbooks to buy international influence and security, the Gulf kingdoms face an uncertain future

Oil-producing Gulf states have accumulated large and persistent budget deficits over the past several years. This economic trend is having a growing geopolitical impact on the Middle East and North Africa, making the region more volatile.

The deficits have been caused by a global decline in crude oil prices that has kept them consistently below the levels needed by the Gulf states for their budgets to break even. Over time, the red ink added up and severely constrained these states’ ability to pay for external geopolitical benefits and influence. Their clout in places like Lebanon, Yemen and, to a degree, Syria has already diminished.

Simultaneously, the deficits have led to depletion of the Gulf states’ cash reserves, in some cases forcing them to liquidate some of their international investments. Outside the Middle East, investments made by sovereign wealth funds enabled the Gulf states to expand their political footprint – particularly in Europe – disproportionately to their size.

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