The Kingdom could see more delays in gigaprojects as lower oil prices adds fiscal pressure: As economists, analysts, investors, and portfolio and fund managers everywhere digest how the US’ new tariff regime and the ensuing global market turmoil will trickle down to countries here in the region, we sat down with EFG Hermes’ Head of Research Ahmed Shams El Din to give us his take on what might happen next.

The key takeaway for Saudi Arabia — a lot of it depends on where oil prices end up. Saudi Arabia is more exposed to oil prices than the UAE, and Kuwait as well, Shams El Din told us. Oil prices have already taken a beating since the tariffs were announced, with Brent Crude reaching a low of USD 63 at one point. So, how might we see things play out in a low oil-price scenario? Below are edited excerpts from our conversation on what the Kingdom might expect, and how headwinds might impact national projects:

The breakeven oil price for Saudi Arabia is USD 82-83 a barrel, so for Saudi Arabia, you can expect a very big budget deficit between 4-5% this year, up from 2.3% in 2024. If oil prices drop to the USD 50 range, it could widen even further. The current account in the Kingdom is also more exposed than the UAE, which will be okay if oil prices hover around the late USD 50s or early USD 60s range.

The liquidity issue is also in favor of the UAE, where oil prices might exacerbate already tight liquidity in the Kingdom. Despite the fact that Saudi Arabia enjoys massive foreign reserves, the crisis relative to its ambition is a challenge. The funding is mostly top-down, so a shift to bottom-up funding is necessary, including active DCM private issuances, crowdfunding — any and all saving tools that can be used to fund their projects. The top-down model prioritizes projects and supports the big players, but the SME sector — which is huge and very influential in the non-oil sector in Saudi — is very important.

That means that you can expect substantial delays with some projects. There will be a second round of recalibration and reprioritization.

There might also be a second round of regulatory reforms — maybe like allowing non-resident deposits or relaxing foreign ownership limits for stocks. The stock market is very big, with a weight of around 4.5%, but active managers’ ownership is well below that at about 1.5%. This means there is captive demand for bns of USDs that can be poured into the Saudi capital market.

On the debt side, which is even more important for liquidity generation, we have started to see cross-border funding. We’ve started to see banks in the UAE become active in Saudi Arabia because you have excess liquidity here and tight liquidity there. Emirates NBD and First Abu Dhabi Bank have been active in project financing. They are in most of the banking syndicates that are bidding for the projects, so this will continue to happen.

IN THE REGION-

Volatility is the name of the game for the foreseeable future: What we’ve learned from working in capital markets for years is that markets are always correlated on the downside. What's happening will definitely reflect negatively on regional markets as we're seeing today [...] unless they reach a very fast resolution on the political side, but the volatility will continue.

The good news is that the region’s fundamentals are stronger this time around than in any previous crisis that we’ve come across, he said. If we’re talking about foreign reserves, the currency peg, and external balances, I think this region will prove to be one of the very few emerging markets that still offer a lot of prospects and a much better return on a risk-adjusted basis than others.

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