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If there is one thing that President Donald Trump likes almost as much as great financial offers, they are low gas prices.
His current trip to the Gulf States is to conflict with these two goals.
The administration has indicated An investment from Saudi Arabia described as an amount of $ 600 million or, in one case, $ 1 trillion.
It is a massive number: at $ 1 trillion, the investment would be equivalent to all the value of the sovereign wealth of Saudi Arabia or the nation’s GDP. In order for the nation to be able to hold this level of investment in the United States in the long term, it would probably require the currently low oil hike, a perspective that sinks to Trump.
“The number is impressive, but its importance will ultimately depend on the depth, the timeline and the oil price,” John Sfakianakistold the chief economist and the head of the Gulf Research Center of Riyadh Fortune. )Unless oil revenue increases, financing of these commitments will strive public finances unless they are wisely managed. “
Oil is currently representing about 60% of the revenue of the kingdom, according to Gulf news.
“Of course, these promises will have to deal with reality, as they are great,” said Maya Senussi, the main economist of Oxford Economics, Fortune in an email. “In our opinion, the advantages of public finances of the lowest prices of energy and focus on the priorities of the Domestic 2030 Domestic Vision mean that the announced promises will only be materialized in part within four years.” (Vision 2030 aims to diversify the Saudi economy through mass projects of public work, which cost set up to 1.5 trillion dollars.)
In order to break -even in spending, the state of Saudi Arabia needs the oil price to be at least $ 96 a barrel, Bloomberg dear. (Others estimates Put the number above $ 100 barrel.)
Brent Crude, the international point of reference, currently quotes about $ 65 a barrel. This price was $ 79 in January, when Trump took office, a number that the President thought he was too high.
“I will also ask Saudi Arabia and Opc to reduce the cost of oil,” he said to World Economic Forum On January 23. “You have to do it, which is frankly surprised by the fact that they did not do so before the election,” said Trump. “That didn’t show much love.”
This love was perhaps a few months later, but it has arrived, and the OPEC announced production increases for May and June that promoted the lowest oil price. The Saudi movement “looks (a) gift without stopping Trump”, write Ron Bousso Reuters Columnist. The lowest prices of gasoline mean that “Trump has already won his great Saudi victory,” wrote Clayton Seigle, a lead member of the Energy Safety and Climate Change Program at the Center for Strategic and International Studies.
How long is it maintained to see this price.
Many observers have called into question the agreement of $ 600 million, calling it unusually large. A data sheet Provided by the White House details investments in the amount of $ 282 billion, including $ 142 million in United States Promise Sales.
Paul Donovan, chief economist of the UBS Global Wealth Management, write This week, the $ 600 million plan has “a spin fanfare, which does not necessarily change anything in reality. The ad does not require that economic forecasts change.”
When it comes to $ 1 trillion on expenses Trump requested, Ziad Daoud, BloombergThe main economist in emerging markets, he said The New York Times It was “worn out”.
As it is, $ 600 million is about 60% of Saudi Arabia GDP and about 40% of its current foreign assets, according to Tim Callen, a visiting companion from the Institute of the Arab Golf States and former IMF official. Comply with this goal would require the country quintuple part of foreign imports from United States computer sources over the next four years. write Earlier this year. While “it seems likely that Saudi investments will grow in the United States,” he said, “the scale of the commitment seems too great.”
Complicating the commitment is Vision 2030, an ambitious program of public works and economic diversification of which cost Estimated to $ 1.3 trillion. These domestic demands have driven the kingdom Deficit expense. Now add the price of oil fall and Saudi Arabia deficit Could duplicate -at the end of this year to $ 70 million, told Farouk Sousa from Goldman Sachs CNBC.
By the way, Saudi Arabia may afford a short -term deficit expense, but the gap is likely to close, either by cutting projects, selling assets or increasing taxes, said Sousa.
Trump claims that Saudi Arabia bought $ 450 million from North -American exports during the first term, a figure that is silent, from the Institute of the Arab Golf States, say It was not the “near” reality.
Trump would hardly be the first public official to announce a Bombastic public project only to leave -disappointed by reality. Politicians like to make their business known, so much erase these claims has be A rural housing industry.
“Let’s be honest, the ads are always in the high range. I don’t think the real effect is as great as the headline. But the sign is positive,” said Simon Johnson, a MIT Economist winner winner Fortune. Johnson previously suggested the CEOs to put on the good side of Trump announcing Development Bids in Swing states even if these promises later turns out to be “be hurt. “”
During Trump’s first term, “there were many promises that did not come to fruition,” said Johnson. “But this is the nature of the business: if you make great investments, they don’t happen during the night.”
This story originally presented to Fortune.com