Oil prices have crashed 30% in a matter of weeks but Saudi Arabia isn't hurting just yet.
The OPEC kingpin and world's leading oil exporter would like a higher price, and has suggested it will back a production cut when the cartel meets next week.
But in hard economic terms Saudi Arabia could bear even lower prices, and that would keep its key ally — President Donald Trump — happy at a time when the kingdom really needs its friends.
US crude oil is now trading at $51 a barrel, off a peak of $76 a barrel in early October, while Brent crude has plunged to $60 from above $86.
"Even if [Brent] prices fall further to $40-$50 a barrel, immediate balance of payments strains are unlikely to emerge," Capital Economics said in a report this week about the impact of the slump on Gulf countries. "That said, these economies are by no means out of the woods," it added.
Prices could even drop to $30 a barrel and Saudi Arabia would still be able to finance the gap between its export and imports "from their foreign exchange savings for at least a decade," Capital Economics said.
A fall of that magnitude would cause budget pressure, however. Analysts estimate the Saudi government's budget for 2018 is based on a conservative price of $50-$55 a barrel. The cost of pumping a barrel of oil in Saudi was less than $10 in 2015, and is unlikely to have changed much since.
Saudi Arabia would like higher prices to fuel its economy, which contracted in 2017 and is projected to grow by just a little over 2% this year, according to the International Monetary Fund.
A year ago, Saudi Arabia deferred a goal of balancing its budget to 2023 from 2020 as it ramped up spending to spur growth. Thanks to higher oil prices in the first nine months of this year, the 2018 deficit is set to come in lower than the targeted 5% of GDP.
The last time world oil prices crashed — in 2014 and 2015 — the kingdom was forced to rethink its finances. Its budget deficit swelled to a record $100 billion in 2015 (15% of GDP) and the International Monetary Fund warned that some Gulf countries, including Saudi Arabia, could run out of money within five years if prices stayed low.
That prompted the country to cut subsidies, introduce a sales taxes and tap global bond markets three times in less than a year, borrowing billions to balance its books. It also embarked on an ambitious program to diversify away from oil known as Vision 2030, an initiative championed by Crown Prince Mohammed bin Salman.
More subsidy cuts?
Analysts say some austerity could be necessary if oil prices remain low in 2019, although Saudi Arabia is unlikely to have to resort to extreme measures again unless they fall much further.
"Lower oil prices will renew urgency for fiscal and structural reform," said David Butter, associate fellow at the Middle East and North Africa program at Chatham House in London.
"It will make it harder for the government to continue making large handouts to state employees, and it will strengthen the case for further subsidy reform."
Despite the first serious efforts at diversification, oil still accounts for about 70% of government revenue and the energy sector makes up 40% of its economy.
A production cut still likely
Earlier this month, as prices were tumbling, the kingdom said its oil output would fall by 500,000 barrels in December. It also suggested it could agree with other oil producers to cut production by at least 1 million barrels.
There's talk that OPEC and Russia may agree an even bigger cut at the Vienna meeting in early December.
That's exactly what Trump doesn't want.
Last week he tweeted a "thank you to Saudi Arabia," for keeping prices down, "but let's go lower," he added.
It came just a day after he signaled he would not take strong action against Saudi Arabia over the murder of Washington Post journalist Jamal Khashoggi, who was killed in the kingdom's consulate in Istanbul last month.
Trump may try to convince bin Salman and Russia President Vladimir Putin of his case to keep oil prices low at the G20 summit in Buenos Aires, Argentina, later this week.
But he may not win the argument.
"There are many moving parts when it comes to political considerations, given the pressure from the US president and the murder of Khashoggi," said Bjornar Tonhaugen, head of oil markets at Rystad Energy.
"It's most likely that Saudi Arabia will manage again to convince the OPEC ministers that production should be [cut]... but the negotiations and considerations this time will be [the most] challenging in a long time."