Saudi Arabia’s Oil Production Cuts Hamper Economy

Saudi Arabia’s economy has slowed markedly after the world’s biggest crude oil producer cut output to shore up prices.

Saudi gross domestic product contracted 4.5% year-over-year in the third quarter of 2023. That’s the largest shrinkage since the COVID-19 pandemic in 2020. The reversal would have been even larger if not for the growth of 3.6% in non-oil activities.

The country’s huge oil sector had been slipping for months but the greater economy still saw growth of 1.2% year-on-year in the second quarter.

The kingdom’s oil sector shrank by 17.3% year-on-year in the third quarter — the most on record for any quarter since at least 2011 — due to voluntary oil production cuts designed to prop up global prices.

Saudi oil production fell to nine million barrels per day in July as the biggest member of the OPEC+ alliance joined with Russia to throttle supply amid signs of weakening demand because of a slowing global economy.

The International Monetary Fund predicts that Saudi Arabia’s GDP will grow just 0.8% for all of 2023, down from 8.7% last year.

While other Gulf states have also faced economic pressure from cuts to oil production, the United Arab Emirates economy is doing better than its Saudi counterpart.

The UAE economy minister said this week that GDP swelled 3.7% in the first half of the year, helped by growth in the non-oil sector.