The International Monetary Fund has reported that if oil prices continue to remain at $50 a barrel, many Middle Eastern countries won’t be able to sustain their current budgets. The report concerns oil-rich governments such as Saudi Arabia, UAE, etc. Specifically, Saudi Arabia needs the price of a barrel to be at least $130. Although the drop in oil prices will benefit American drivers, the Middle East will experience further turmoil if many countries’ budgets aren’t adjusted, or if prices don’t rise again.
Saudi Arabia spends over 10% of its GDP on its military, and it is one of the few stable countries in the region. If military spending is cut, some of the region’s stability and balance may shift and this will result in further violence.
The Middle East continues to be volatile, but imagine an even more volatile Middle East. Oil-drop effects on Saudi Arabia are also important to the United States because the Saudis are among America’s closest allies in the the Middle East and strongest ally in the Gulf. Additionally, Saudi Arabia is one of the region’s powers that keeps Iran in check.
Israel may also suffer from the drop in oil prices. Israel and Saudi Arabia have become strategic allies recently as their common enemy – Iran – has gained more power. Consequently, Israel needs a militarily powerful ally in the region that is determined to keep Iran controlled. Hopefully, the prices stabilize for the region’s sake.