The International Monetary Fund said Saudi Arabia needs a much higher oil price to fund the government’s burgeoning spending commitments than previously forecast, a view that explains why the kingdom can’t afford to let go of the crude output curbs that are inflicting pain on consumers worldwide.

Using a measure of fiscal resilience known as oil breakeven prices, the fund’s latest projections published on Thursday showed Saudi Arabia would need crude close to $86 per barrel to balance its budget, an increase of nearly $5 from the IMF’s estimates in May.

Saudi Arabia increasingly stands out among a group of the Middle Eastern energy producers tracked by the IMF, most of which either need lower oil prices to balance their books or have seen their breakeven estimates reduced sharply this year.

IMF’s Breakeven Oil Price Estimates for 2023: 

For Saudi Arabia, the IMF’s assessment means oil prices are now barely enough and at their current level would put even more pressure on a budget that the government already expects to run a deficit until 2026. 

It’s the second time this year that the IMF has revised upwards its estimate of the oil price Saudi Arabia needs to avoid a deficit.

Given the kingdom’s shift to more generous spending this year, Bloomberg Economics estimates Saudi Arabia requires crude at $91 to keep public finances in balance during the second half, an increase of $10 from the first six months. 

International benchmark Brent was little changed at around $86 on Thursday. Earlier in the day, oil erased all of this week’s surge that followed Hamas’ attack on Israel. 

The Saudi budget’s growing oil appetite is putting it on a collision course with some of the world’s biggest consumers of the fuel. Indian Oil Minister Hardeep Puri told Bloomberg TV on Tuesday that oil prices need to fall to levels of around $80 to be good for the economy.

In its recent pre-budget statement, the Saudi Finance Ministry outlined plans to boost expenditure as part of Crown Prince Mohammed bin Salman’s program to transform the economy. The latest blueprint now assumes fiscal shortfalls this year and until at least 2026, a change from plans to keep the budget in the black for years to come. 

Despite some headway in diversifying the economy, energy still provides the bulk of the Saudi government revenue. The upshot is that higher oil needs could determine the kingdom’s willingness to stick with policies in support of crude prices for longer.

Saudi Arabia, a leader of the OPEC+ alliance alongside Russia, this week reaffirmed it will stick with oil supply curbs until the end of the year. The production cuts have been costly, and economists at institutions including the World Bank estimate the kingdom’s gross domestic product will shrink this year as a result. 

By contrast, the IMF still expects modest growth at 0.8% “because of the good performance of the non-oil sector this year,” said Jihad Azour, the IMF’s director for the Middle East, North Africa and Central Asia.

The IMF also sees economies across the Middle East and North Africa expanding at a slower pace of 2%, down from its previous forecast of 3.1%.

“The extension of the OPEC+ additional cut and the voluntary cut that was made this year brought the growth for the oil GDP further down” in Saudi Arabia, Azour said. “We expect non-oil growth of more than 5% this year. Therefore, this has compensated for the drop in oil production and its impact on the oil GDP.”