Bank of America says deposit growth is slowing and strains in the UAE are spilling over, even as Saudi oil output returns to pre-war levels.
Saudi Arabia's banks are short of liquidity as deposit growth slows and the economy feels the effects of the war on Iran, Middle East Eye reported on Wednesday, 11 November, citing a Bank of America note to clients first reported by Bloomberg.
The bank said the kingdom is facing "contagion" from tight liquidity in the United Arab Emirates as well as a fast slowdown at home. Saudi and Emirati banks are closely linked, and interbank flows from the UAE make up a large share of deposits in Saudi banks. At the same time, government entities have been withdrawing deposits while demand for loans remains high, which pushes up the cost of money.
Middle East Eye noted that the riyal, like the currencies of the UAE, Qatar, Oman and Bahrain, is pegged to the US dollar, so Gulf central banks cannot inject liquidity as freely as the Fed or the European Central Bank; their rates track US policy.
The squeeze comes as oil exports recover. Saudi Arabia told OPEC it produced 10.6 million barrels a day in October, up from about 8.4 million in September and its highest since February, before the US and Israel attacked Iran. The East-West pipeline to the Red Sea port of Yanbu has let the kingdom route around the Strait of Hormuz, though Riyadh says the pipeline has been targeted by the Houthis and by militias in Iraq. Middle East Eye also reported Houthi missile and drone attacks targeting Saudi energy sites, airports and commercial buildings since a ceasefire in Yemen collapsed.
