Saudi Arabia faces liquidity crunch even as oil exports rebound to pre-war levels

Saudi Arabia is grappling with a liquidity crisis, despite its oil exports rebounding to pre-war levels. Bank of America warns of a contagion effect from tighter liquidity in the UAE, which is also feeling the pressure of the US-Israeli war on Iran. The report highlights that Saudi banks are closely linked to their Emirati counterparts, with numerous interbank transactions contributing to deposits at Saudi banks.

Meanwhile, government entities are making withdrawals from these banks, while loan demand is high, raising the cost of Saudi money. Gulf central banks cannot inject additional liquidity due to their currencies being pegged to the US dollar and following US Federal Reserve interest rates. Even as oil exports reached a record 10.6 million barrels per day in October, Saudi Arabia's economy remains under strain, primarily due to its economic ties with smaller Gulf states, such as the UAE.