Oil slump may cause Saudi Arabia to abandon its dollar peg

By FXStreet FXStreet (Mumbai) – The plunge in oil prices in the last on year can be attributed to the global oil glut largely the result of OPEC’s decision to pump record volumes with the objective to defend market share and eventually drive out US shale producers. There remains a strong possibility that crude prices will further fall in 2016. With oil prices touching multi year lows, the richer gulf nations have begun to feel the pinch. The IMF had warned in October that Saudi Arabia will likely run out of money within five years unless it adopts drastic measures of reform. Saudi Arabia, which championed the market share strategy, ran a deficit of 367 billion riyals (€91 billion billion) or 15 per cent of GDP in 2015. The riyal dropped in the forwards market to its lowest since 1999 following a sharp increase in budget deficit. The riyal suffered on fears that Riyadh may have to abandon its peg to the US dollar.

Khalid Alsweilem, the former head of asset management at the Saudi central bank (SAMA) flagged the concern that if the oil slump drags any further, which it likely will, Saudi Arabia will be forced to give up its dollar …read more

Source:: FX Street