Country risks for investors operating in Saudi Arabia

04 November 2019

Country risks for investors operating in Saudi ArabiaSaudi Arabia will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.

Saudi Arabia's oil sector has largely recovered from disruption caused by recent attacks on critical infrastructure. However, the incidents highlighted the country's potential vulnerability to additional attacks.

The government's fiscal consolidation agenda is likely to face headwinds, but revenues may be boosted by an opening up of the tourism sector.

Security Environment

In the early morning on September 13, 2019, cruise missile and unmanned aerial vehicle (UAV) drone strikes damaged the Abqaiq and Khurais crude processing and stabilization facilities belonging to Saudi Arabian Oil Co. (Saudi Aramco). Eighteen UAVs and seven cruise missiles targeted two oil facilities 500km from the Yemeni border.

Responsibility for the attack has been claimed by Iranian-backed Houthi rebels in Yemen. The Houthis have been fighting against a Saudi-led military collation in neighboring Yemen for the past four years.

However, according to the US and Saudi Arabia, evidence suggests the missiles were launched from within Iran.

The attacks have escalated war risks between Saudi Arabia, Iran, and their respective proxies/allies in the Middle East. Saudi Arabia is likely to limit its response in the short term, given the likelihood of further retaliation.

Country risks for investors operating in Saudi ArabiaAny Saudi-backed retaliation is unlikely to target Iran directly, given the high cost of interstate war. Instead, it may lead to an intensification of airstrikes against Iranian-allied Houthis in Yemen, intended to destroy UAV capabilities.

The possibility of interstate war in the Middle East could increase should the US declare its willingness to support any Saudi military escalation.

Trading Environment

Rising geopolitical tensions with Iran are likely to generate headwinds to Saudi Arabia's macroeconomic position. Recent attacks on the country's critical oil sector highlight broader economic vulnerabilities.

The resulting damage to the facilities' infrastructure in September 2019 initially halved the daily oil production of 9.7 million barrels.

While production was quickly restored, further attacks could generate more significant disruption and affect the economic outlook.

The Saudi government aims to balance the budget by 2023. However, the fiscal deficit is expected to widen to 6.2% of GDP in 2020, from an estimated 5.9% in 2019.

Pricing Outlook Saudi ArabiaWhile the government has stated its intention to mitigate the impact of reduced oil revenues in 2020 through spending cuts, reductions to social spending are likely to be unpopular with the population and difficult to implement.

Despite this, non-oil revenues may be boosted by recent measures to boost the tourism sector, through the introduction of a visa regime for international visitors.

Persistent fiscal deficits are likely to elevate general government debt levels in the coming years, reaching a forecasted 26% of GDP in 2021, from 16% in 2018.

However, sovereign credit risks will remain low, given Saudi Arabia's significant foreign exchange reserves.

4 Key Takeaways

  • Saudi Arabia's oil sector has largely recovered from disruption caused by recent attacks on critical infrastructure.
  • Attacks on Saudi Arabia’s oil processing facility at Abqaiq and the Khurais oil field have escalated war risks between Saudi Arabia, Iran, and their respective proxies/allies in the Middle East.
  • Any Saudi-backed retaliation following the recent attacks is not likely to target Iran directly, given the high cost of interstate war.
  • The Saudi government aims to balance the budget by 2023. However, the fiscal deficit is expected to widen to 6.2% of GDP in 2020, from an estimated 5.9% in 2019.

The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Indonesia, Sri Lanka, Gabon and Ecuador and all of which have been the subject of recent enquiries from our client base.

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  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.


    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)20 8108 9544.

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