Saudi Arabia's determination to retain market share at the expense of state funding is posing problems beyond the oil industry. With a proxy war against Iran playing out in neighbouring Yemen, and the Islamic State insurgency on its doorstep, you might have thought that Saudi remits for the global defence industry were secure - but you need deep pockets to throw your weight around.
Reduced oil revenues are eating into defence budgets in the Gulf region, the world's fastest growing arms market. Overall spending contracted for the first time in a decade this year, while further cut-backs are expected in 2016, according to a report published by global intelligence consultancy IHS. Total defence spending in the Gulf was down 6 per cent on the previous year, but the overall Saudi fiscal deficit, estimated at 367bn riyals (£64bn), gives particular cause for concern.
The Desert Kingdom plans to cut annual state spending by 14 per cent, and is looking at the possibility of reducing electricity subsidies. There are also plans afoot to raise charges on public services and apply value-added tax in tandem with other Gulf Arab nations. None of these measures would play out well on Arab Street. But if revenues keep on shrinking, policymakers in Riyadh will be forced to make greater demands, albeit reluctantly, on the Kingdom's dwindling foreign reserves if they want to avoid a steep devaluation in the riyal/$ rate.
