Saudi Arabia is looking for additional funding as the economic fallout from the Iran war puts pressure on its finances, disrupts trade and hits its oil sector, reported Bloomberg.
The kingdom’s National Debt Management Center (NDMC) is sounding out banks about raising at least $8 billion through a fresh loan, while state-backed oil giant Saudi Aramco is also discussing possible financing with lenders, according to the report citing people familiar with the matter.
Both discussions are at an early stage and may not ultimately result in deals.
The move comes at a complicated time for Saudi Arabia. The war has disrupted shipping through the Strait of Hormuz, increased import costs and strained supply chains, while attacks on energy infrastructure have added pressure on the kingdom’s oil industry.
At the same time, Saudi Arabia is trying to continue funding its ambitious economic diversification programme, even as its finances come under greater pressure.
Saudi Arabia’s economy suffered its steepest contraction since the pandemic in the second quarter, with the oil sector shrinking by nearly 25%, Bloomberg reported.
The conflict has contributed to the pressure on the sector, with Iran targeting Saudi energy infrastructure and Iran-backed Houthis threatening ships in the Red Sea.
The disruptions have also complicated Saudi Arabia’s efforts to transport oil through routes that bypass the Strait of Hormuz from its western coast.
Yet higher crude prices have offered some relief.
Brent crude has averaged around $87 a barrel this year, helping offset some of the financial pressure created by the conflict.
Even so, Saudi Arabia recorded a deficit of 34.3 billion riyals, or about $9.1 billion, in the second quarter.
The possible new loan would add to Saudi Arabia’s growing use of debt and other external sources of capital.
The NDMC said in May that it had already completed its annual borrowing plan, covering around 90% of the kingdom’s financing requirements. Any additional needs were expected to be met primarily through private financing channels and local markets.
Saudi Arabia has already raised around $6 billion through domestic and international bonds this year, according to Bloomberg. Aramco has raised another $4 billion.
The kingdom’s Public Investment Fund (PIF), meanwhile, raised $7 billion in May in one of the first public-market deals since the Iran war began.
The latest move therefore reflects a broader effort to diversify how Saudi Arabia raises money rather than relying solely on conventional bond markets.
Saudi Arabia has also increasingly turned to syndicated loans.
Late last year, the NDMC raised a $13-billion, seven-year syndicated loan. The transaction was seen as part of the kingdom’s effort to tap non-market sources of capital to help finance Crown Prince Mohammed bin Salman’s economic diversification plans.
The potential new borrowing comes as those plans continue despite the war.
Saudi Arabia has been spending heavily on projects designed to diversify its economy beyond oil, while also investing internationally through its sovereign wealth fund.
Saudi Aramco is separately holding discussions with banks over possible financing, according to people cited in the Bloomberg report.
The oil giant has been exploring ways to broaden its funding sources as it remains active in debt markets and considers different ways of bringing in outside capital.
Bloomberg has previously reported that Aramco is pursuing a privatisation plan that could eventually raise as much as $35 billion.
The company has also said it plans to remain active in debt markets and issue new types of financial instruments to attract different categories of investors.
The push for outside funding extends to Saudi Arabia’s roughly $900-billion sovereign wealth fund.
Under its latest five-year strategy, the PIF is preparing to increase its focus on transferring mature assets to private owners, pursuing listings and divestments, and bringing in more external capital.
The strategy comes as Riyadh reassesses spending on some of its ambitious mega-projects amid war-related disruption.
But Saudi Arabia has not stopped deploying capital overseas.
The kingdom recently committed to a €6-billion, or roughly $7-billion, theme park complex near Paris, Bloomberg reported.