Saudi Arabia's war in Yemen could change OPEC's entire strategy
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This policy includes an aggressive pace of oil production despite extremely volatile oil prices.
However, if prices once again move significantly lower and look like they'll stay there all the way into 2016, it's "certainly possible" that Saudi Arabia, the most influential member of OPEC, "could still call for a course correction," according to RBC's Helima Croft.
Why?
Well, Saudi spending has gone through the roof as the Kingdom attempts to diminish the influence of its regional rivals and keep its citizens "content" - and that's putting a strain on its finances, according to Croft.
From RBC's note:
"The military campaign in Yemen, more assertive efforts to roll back Iranian regional influence, and more muscular counter-terrorism efforts will put further pressure on Saudi government finances as they ratchet up security spending.
While Saudi crude production has recently climbed to new highs near 10.3 mb/d, it is unclear how much financial relief this will provide as domestic demand for energy continues to climb and the move to diversify power generation is still a work in progress."
Additionally, Saudi Arabia's government announced a two-month salary payment for all citizens, and last month they announced an additional one-month bonus for all military personnel.
In order to pay for all this, the government has had to "dip further" into its forex reserves. According to RBC, they've withdrawn $36B over February and March alone.
"It is worth noting that the December budget statement projected that the total deficit for 2015 would be $38B, a number looking extremely unrealistic," according to RBC.
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"Given these sweeping personnel changes in the past 100 days and recent body foreign policy moves, we do not believe that policy continuity is necessarily a sacrosanct principle King Salman beyond the immediate term," according to RBC's Croft.
In other words, Saudi Arabia's oil game-plan should stay on course for now. But it's possible that things can change up following their increased security spending and the new king's willingness to change things up.
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