Saudi Arabia's Growing Debt Dependency in a Low Oil Price Era: Assessing the Long-Term Investment Risks and Opportunities

Saudi Arabia’s fiscal landscape is undergoing a seismic shift as the kingdom navigates the dual pressures of low oil prices and its ambitious Vision 2030 agenda. With national government debt reaching $319.7 billion in December 2024—a 14% year-on-year increase—and a debt-to-GDP ratio of 29.9% [1], the kingdom’s reliance on borrowing has become a critical focal point for investors. While Saudi Arabia remains among the least indebted nations globally, with net debt at 17% of GDP [2], the trajectory is concerning. Projections suggest public debt could surge to 46% of GDP by 2030 if oil prices remain above $96 per barrel [3], a threshold that underscores the fragility of its fiscal model in a volatile energy market.

The Oil-Debt Nexus: A Double-Edged Sword

The correlation between oil prices and Saudi Arabia’s fiscal health is undeniable. In 2025, a four-year low in oil prices slashed government revenues, forcing a $9.21 billion fiscal deficit in Q2 alone [4]. To bridge the gap, the Public Investment Fund (PIF) raised $11 billion in 2025 through bond and sukuk issuances [5], while corporate debt issuance hit $47.9 billion in H1 2025 [5]. This surge in borrowing, however, comes with risks. Foreign participation in Saudi debt remains minimal (under 2% of outstanding issuance) [5], leaving the market vulnerable to liquidity shocks. Regulatory reforms, such as the 2024 investment law, aim to attract foreign capital, but domestic financial institutions still dominate the investor base [5].

The IMF has warned that Saudi Arabia’s fiscal deficit could peak at 4% of GDP in 2025 [5], a red flag for investors. Yet, credit rating agencies like Fitch and S&P remain cautiously optimistic, citing the kingdom’s robust sovereign balance sheet and strategic fiscal adjustments [5]. The key question is whether Saudi Arabia can maintain fiscal discipline while pursuing its $1.2 trillion Vision 2030 agenda [6].

Energy Projects: A Gamble on Diversification

Vision 2030’s energy sector initiatives, such as the $110 billion Jafurah shale gas project and the ACWA Power-Aramco renewable energy consortium, exemplify the kingdom’s pivot toward energy diversification. The Jafurah project, led by Saudi Aramco, secured a landmark $11 billion lease-and-leaseback deal with a BlackRock-led consortium in August 2025 [7]. This innovative structure allows Aramco to retain a 51% stake in the Jafurah Midstream Gas Company (JMGC) while generating immediate liquidity. The project, expected to produce 15 GW of electricity by 2028 [8], aligns with Saudi Arabia’s goal to generate 50% of its electricity from renewables by 2030 [8].

However, Aramco’s Q2 2025 net profit fell by 22% year-on-year to $22.7 billion due to lower oil prices and rising debt [7]. Total borrowing now stands at $92.9 billion [7], a stark reminder of the sector’s exposure to global energy market volatility. For investors, the Jafurah project represents both an opportunity—a potential $23 billion annual GDP contribution by 2025 [7]—and a risk, as its success hinges on sustained gas demand and geopolitical stability.

Sovereign Debt Market: A Test of Resilience

Saudi Arabia’s debt capital market has expanded rapidly, with sukuk and corporate bonds accounting for $465.8 billion in total issuance as of March 2025 [5]. Sukuk, which make up 60.4% of the market [5], have become a cornerstone of the kingdom’s financing strategy. Yet, the lack of secondary trading activity and limited foreign participation remain structural challenges [5].

The government’s plan to issue $168 billion in sukuk and bonds between 2025 and 2029 [5] will test the market’s resilience. Regulatory reforms, including the Financial Sector Development Program, aim to address these gaps, but success depends on attracting institutional investors beyond the Gulf. For now, Saudi Arabia’s debt market offers high yields but carries elevated credit risk, particularly if oil prices remain depressed.

Conclusion: A Calculated Bet

Saudi Arabia’s debt dependency in a low-oil-price era presents a paradox: the kingdom’s fiscal vulnerabilities are real, yet its strategic investments in energy and infrastructure offer long-term upside. For investors, the key lies in balancing the risks of oil price volatility and rising debt with the opportunities in Vision 2030’s transformative projects. The Jafurah gas field and renewable energy initiatives, coupled with a maturing debt market, could position Saudi Arabia as a pivotal player in the global energy transition. However, the path forward requires vigilance. As the kingdom’s debt-to-GDP ratio climbs, the sustainability of its fiscal model will hinge on its ability to diversify revenue streams and attract foreign capital—a challenge that will define its economic trajectory for years to come.

Source:
[1] Saudi Arabia National Government Debt, 2004–2025 [https://www.ceicdata.com/en/indicator/saudi-arabia/national-government-debt]
[2] Saudi Arabia: Concluding Statement of the 2025 Article IV Mission [https://www.imf.org/en/News/Articles/2025/06/25/saudi-arabia-concluding-statement-of-the-2025-article-iv-mission]
[3] Saudi Arabia's Rising Debt Dependency in a Low-Oil-Price Era [https://www.ainvest.com/news/saudi-arabia-rising-debt-dependency-oil-price-era-assessing-financial-sustainability-vision-2030-2509/]
[4] Saudi Arabia Forges Ahead with Jafurah Shale Gas Field [https://english.aawsat.com/business/5172341-saudi-arabia-forges-ahead-jafurah-shale-gas-field-development]
[5] Aramco Signs $11 Billion Jafurah Midstream Deal with International Consortium Led by Global Infrastructure Partners [https://www.global-infra.com/news/aramco-signs-us11-billion-jafurah-midstream-deal-with-international-consortium-led-by-global-infrastructure-partners/]
[6] Saudi Vision 2030: High-Growth Investment Opportunities in 2025 [https://www.mondaq.com/saudiarabia/government-contracts-procurement-ppp/1664770/saudi-vision-2030-high-growth-investment-opportunities-in-2025]
[7] Saudi Aramco's Q2 2025 Profit Drop: Navigating a Shifting Global Energy Landscape [https://serrarigroup.com/saudi-aramcos-q2-2025-profit-drop-navigating-a-shifting-global-energy-landscape/]