Oil Surge May Put Saudis in Black in ’94

The surge in oil production that Saudi Arabia embarked on to fill the gap left by Iraq and Kuwait could break the kingdom’s decade-long deficit, pay off all war costs and leave Riyadh with surplus cash by 1994, independent economists say.

The cash windfall could also translate into political clout, since Saudi Arabia is determined to boost its military power, which would cost tens of billions of dollars.

The country has raised production to about 8 million barrels a day from an original OPEC quota of 5.38 million since United Nations sanctions and war damage neutralized Iraqi and Kuwaiti fields last year.

The costs of the Gulf War have more than wiped out the windfall gains in the short term. But if the country keeps production high, government finances could swing back into the black soon, the economists say.

They forecast huge budget deficits in 1990 and 1991 to break the back of an estimated $60 billion in war-related costs.

But high oil output in 1991 will generate up to $40 billion in revenue at a conservative prediction of $17 a barrel for oil, they said.

On top of this, non-oil revenue will bring in more than $10 billion a year, and this should rise in the next few years as Saudi corporate profits improve with peace, they said.

Since Iraq invaded Kuwait last August, the Saudi government has declined to make budget forecasts because of the uncertainty.

Economists differ on how they expect the government to spread war costs over the next few years. They believe that the government deficit in 1990 was $13 billion to $17 billion and will be a huge $30 billion this year.

This will undoubtedly create short-term cash flow problems for the government, they said.