Saudi Arabia is under economic pressure from the US and Israeli war against Iran. Although its oil exports have returned to normal, deposit growth at the country’s banks has slowed and a liquidity crunch has emerged in the economy, according to a new report by Bank of America.
Bank of America, cited in a Bloomberg report published on Tuesday, said the liquidity squeeze in the United Arab Emirates (UAE) is spreading to Saudi Arabia. At the same time, the Saudi economy is quickly losing momentum, putting the banking sector under strain.
The report said the Iran war has also put the UAE economy under pressure. As liquidity dries up at Emirati banks, Saudi lenders are feeling the effects too. Because interbank dealings between the two countries’ banking sectors are large, the crunch is also hitting deposit flows in Saudi Arabia.
Meanwhile, as the Saudi economy weakens, government bodies are withdrawing money from banks. With demand for loans still high, the supply of money in the market is shrinking and borrowing costs are rising.
The situation is of particular concern because the Saudi riyal is pegged directly to the US dollar. The currencies of the other Gulf states, including the UAE, Qatar, Oman and Bahrain, are also tied to the dollar at fixed exchange rates.
The report said that, unlike the United States, Europe or Russia, Gulf central banks cannot simply supply extra money to the market when they choose. Their currencies are pegged to the dollar, and their interest rates have to be set in step with the policy of the US Federal Reserve.
Oil output rises despite the war
Saudi Arabia has avoided the heaviest economic blow of the Iran war, but its economic ties with other Gulf states leave it exposed. The UAE is the largest source of foreign direct investment in Saudi Arabia.
Saudi Arabia also faces a new security crisis since the ceasefire in Yemen collapsed. The Houthis have launched missile and drone attacks on the kingdom’s energy infrastructure, airports and key commercial sites. Earlier this week a Houthi air strike also hit the Aramco tower in Riyadh.
Despite the liquidity crunch, Saudi Arabia’s oil exports and output have risen. The kingdom told the Organization of the Petroleum Exporting Countries (OPEC) that it produced 10.6 million barrels a day in October, up from 8.372 million barrels a day in September. That is its highest output since February.
বাংলায় মূল প্রতিবেদন পড়ুন · Read the original Bengali report