Saudi Arabia is set to join the ranks of the trillion-dollar economies this year, helped by a surge in oil revenues following Russia’s invasion of Ukraine.
There were 18 countries with a gross domestic product (GDP) larger than $1 trillion in 2021, according to the IMF. They were led by the U.S. with its $23 trillion economy, followed by China in second place with $17.5 trillion and Japan in third with $4.9 trillion.
Saudi Arabia had the 19th largest economy last year, but it was still some way off the $1 trillion threshold, with GDP of $834 billion.
What’s changed this year is the spike in oil prices, the key element of the Saudi economy, notwithstanding official efforts to diversify. According to the U.S. Energy Information Administration, the cost of a barrel of Brent crude – the key international benchmark – is expected to average more than $104 this year, up from $70.89 in 2021 and just $41.69 in 2020.
Prices have surged in the wake of Russia’s invasion of Ukraine in February and as a consequence of Saudi-Russian cooperation to limit oil output, agreed via the Opec+ group of oil exporters.
That has meant huge revenues pouring into the Saudi government’s coffers. Riyadh posted a budget surplus of SR77.9 billion ($20.8 billion) for the second quarter of this year, when oil revenues were up almost 90% year-on-year.
That situation seems likely to continue for the rest of the year. “We expect the [Saudi] budget to record a surplus of 10.4% of GDP this year, following almost a decade of budget deficits,” Dubai-based bank Emirates NBD said in a note on August 5.
In Saudi Arabia, high oil revenues equal fast economic growth. Data released by the government on July 31 showed the economy had expanded by 11.8% year-on-year in the second quarter, with oil sector growth up 23.1% and non-oil growth of 5.4%.
According to forecasts by the IMF, the economy will grow by 7.6% over the year as a whole, taking Saudi GDP up to $1,040 billion. Others expect even faster growth. Consultancy firm Capital Economics said it thought the economy would expand by 10% this year, in a research note issued on August 1.
UK-based Oxford Economics also expects the kingdom to pass the $1 trillion mark this year – a critical point for the government which is seeking to expand its economy to $1.7 trillion by 2030, under crown prince Mohammed bin Salman’s reform strategy.
Saudi Arabia is not the first country in the Middle East to break through the $1 trillion barrier – Iran joined the club in 2021. Although it is battling sanctions, it too is benefitting from high oil prices.
