I have seen a lot of threads popping up on this forum, and I feel that they were mostly emotional rather than critical of the reality, only focusing on our view of the whole situation. In different words, to sum up my point, we have failed to realize that the repayment of a loan and the silence on renewing the oil-on-deferred-payments could be a consequence of the deep pile of sh!t that Saudi Arabia is in right now. So, I think it's important to talk about a few things and understand all of this from Saudi Arabia's perspective.
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Domestic Economy
Honestly, their economy is not looking good right now. They have been struggling a bit due to the changing mobility dynamics around the world, and also the recent hit on oil prices and demand for oil due to the pandemic. Here are some factors which indicate that their economy isn't doing as well as they would like.
- The International Monetary Fund warned that the economy of Saudi Arabia could actually shrink by -6.8% in 2020. It already shrank by -1% in the first quarter.
- Saudi Aramco, the backbone of the country, reported very recently that it took a hit this year due to the pandemic, as its profit plunged by 73%. This implies that Saudi Arabia has seriously struggled with oil exports due to the pandemic. We're talking billions of dollars near the mark of $100 billion.
- Saudi Arabia, only a couple years back introduced a domestic VAT of 5%, and now this year, in May, tripled it to 15%.
- Just very recently, Saudi Arabia announced it will consider an asset sale, as well as introducing an income tax on its citizens in the Kingdom.
- Economic indicators show that inflation has been on a slow and steady rise. Petrol is going up prices domestically, and it will probably go higher since UAE also pumped its domestic petrol prices up significantly as well.
- The government had announced austerity measures in April it will take to keep the economy afloat during the crisis.
- This year, Saudi Arabia, so far posted a deficit of about $29 billion. It has been borrowing from the international, as well as the domestic market, in addition to using $13 billion from its reserves.
- Saudi Arabia is considering privatizing sectors 'previously not considered' this year.
- Let's not forget the war they are in, it costs. A lot.
Why is this happening?
Well, mostly because we have to realize that the entire economy of Saudi Arabia floats on the insane export of oil and oil products. This is bad in general, especially when the world is working towards the better use of renewable energy, which is why the new Prince has been trying to diversify their financial dependency on other areas as well, such as tourism. But Saudi Arabia hasn't yet reached such a point where it can 'live' without oil, or rather not even feel the impact if it loses some exports of oil. There's a pandemic going on, so what do we all expect. Of course, the oil exports would take a hit. In fact, at one point the oil prices dipped below zero, and for a country whose economy relies on oil export... well you know how well that fares for them. On top of that, let's not forget that the country has entered a big war which it cannot pull out of, and it's costing them, for the war machinery and American assistance, both.
What does this mean?
With the current situation of their economy, is it really that far fetched to think that they would ask for the reimbursement of a part of their loan, and be silent on the agreement for deferred payments on oil? Also, I want to make a small correction. According to news reports, the agreement was set to be renewed two months ago but the response has only been silence so far (not rejection), which means that this cannot be in reaction to Shah Mehmood Qureshi's comments which were made in his personal capacity only a few days ago.
Okay, but what about them not convening the FM meeting on Kashmir via OIC?
You have to understand that India is the 3rd or 4th largest importer of oil from Saudi Arabia. The export of oil from Saudi Arabia to India is worth $16.8 billion. They cannot lose a part of this at a point in time which is so crucial for their economy. I normally say that trade is not a favor, but a necessity; but over here, oil is a commodity that so many other countries export, and at competitive pricing too, India can choose another exporter, so India does have a degree of leverage at this point in time, especially with Iraq slowly stabilizing around the corner.
Conclusion
I want you to genuinely think from their perspective and see if their actions are really that uncalled for.
Secondly, I think it is a deep blunder by Pakistan to keep on approaching Saudi Arabia to convene an OIC meeting on Kashmir, why can't Pakistan call for a meeting on its own or rather approach the impartial persons with high positions in OIC to convene a meeting so that no one country is blamed. It is rather obvious that for Saudi Arabia to call for such a meeting would put the country in an awkward position.
Lastly, Shah Mehmood Qureshi has a calm and sophisticated personality but I think that his recent statements, even in his personal capacity, were absolutely nonsense. Let me explain why. As I said, Pakistan should be approaching the president or secretary-general of OIC, not a country. Also, calling for an FM meeting in OIC won't liberate Kashmir; if this is about narrative then an OIC meeting doesn't help that either because no one cares about OIC including its own member countries, and just like how narrative of Palestine hasn't helped Palestine despite the popularity and mass information available, it won't help Kashmir. So, for absolutely nothing, we are breaking off our relations with a rather important country. By not saying these statements, we had nothing to lose, actually probably something to gain in the future, but by saying these statements, we have everything to lose.
That's my opinion. Data were taken from various finance-based news outlets.
Edit: I want to add that Pakistan financed $1 billion loan by borrowing $1 billion from China. Could this not mean that both countries reached an understanding? After all, it is difficult to arrange a large loan in such a short period of time. Just a speculation, no basis.
You never go against the bank.
