Construction Costs in Saudi Arabia if Brent Oil Hits $60 — Impact on Middle-Class Families

A sustained Brent crude price of $60 per barrel would significantly reshape the economic landscape in Saudi Arabia, directly

influencing construction costs. For Saudi middle-class families earning between €1,500 and €4,000 monthly, understanding

these shifts is crucial for homeownership aspirations and managing household budgets. This analysis details the

mechanisms and offers actionable advice.

The Transmission Mechanism: From $60 Brent to Higher Construction Costs

The impact of $60/barrel Brent crude on Saudi construction is multifaceted. Firstly, while $60 is a moderate price

compared to recent peaks, it still represents a substantial portion of Saudi Arabia's national revenue. The correlation

between oil prices and government spending on infrastructure and housing projects is direct and strong. Lower oil

revenues mean a more constrained government budget. Historically, a $10/barrel drop in oil prices can translate to

several billion USD less in government capital expenditure. At $60/barrel, compared to, say, $85/barrel, the government

might scale back some planned mega-projects or extend their timelines. This reduced pipeline of large-scale projects can

reduce demand for construction materials and labor, but the primary impact for middle-class families comes from

indirect effects.

Secondly, indirect influences are more likely to push costs *up* for individual homebuilders. Lower oil prices often lead

to a devaluation of the Saudi Riyal (SAR) against major currencies like the Euro or US Dollar, as the Kingdom's primary

export value diminishes. If SAR depreciates by, for example, 5% against the Euro, the cost of imported construction

materials – steel, specialized equipment, certain finishing materials – increases proportionally. Saudi Arabia

imports a significant percentage of its high-grade steel, electrical components, and advanced machinery. A 5% rise in

import costs could add thousands of Euros to a typical home construction budget.

Lastly, domestic energy prices, though government-subsidized, are indirectly linked to international rates. Transport

costs for materials within the Kingdom, heavily reliant on diesel, would likely see a slight increase. This might add another

1-2% to the final cost of a project.

Saudi-Specific Factors Amplifying the Impact for Middle-Class Families

Saudi Arabia's Vision 2030 initiatives, particularly the push for increased homeownership, are designed to buffer some

market shocks. However, for middle-class families with monthly incomes between €1,500 and €4,000, two factors become

critical at $60 Brent. At this oil price, government *direct subsidies* for housing might be less expansive than during

periods of higher oil revenue. While schemes like Sakani promise support, the value of direct financial aid or reduced

interest rates on mortgages could be less generous. For a family earning €2,500/month, even a 10% reduction in subsidy

value translates to a loss of €250-€500 in potential savings on a home purchase over a year, making a significant difference

for their debt-to-income ratio.

Furthermore, the domestic labor market for construction relies heavily on expatriate workers. A slower economy due to

lower oil prices can lead to a slight outflow of labor or, more likely, a plateau in available skilled workers. This

maintains or slightly increases labor costs, which for a typical middle-class dwelling can constitute 30-40% of overall

construction expenses.

Concrete Cost Example and Recommendations

Consider a middle-class Saudi family aiming to build a 200 sq. meter, three-bedroom home. Assuming current construction

costs average €700/sq. meter, the base cost is €140,000.

With Brent at $60/barrel:

• Imported Materials: A 5% depreciation of SAR could add €3,000 to €5,000 to the overall cost of materials.
• Transport & Logistics: A 1-2% increase in logistics could add €500 to €1,000.
• Reduced Subsidies (Opportunity Cost): If government housing support is scaled back by 10% compared to a

scenario with higher oil, a family could effectively lose savings of €5,000 to €10,000 over the lifetime of a mortgage.

Therefore, for a family with a €2,500 monthly income, their total home construction budget could effectively increase by

€8,500 to €16,000. This additional cost means either a higher down payment or an increased monthly mortgage

payment. An extra €10,000 in loan value, amortized over 20 years at a 4% interest rate, adds approximately €55 per month

to mortgage payments. This represents a 2.2% increase in their average monthly expense, a noticeable burden for a family with

tight budget constraints.

Recommendations for Middle-Class Families:

1. Prioritize Local Materials: Opt for Saudi-produced cement, concrete blocks, and aggregates. This minimizes

exposure to currency fluctuations.

2. Optimize Design: Focus on simpler, efficient designs. Complex architectural features often require specialized

and imported components, driving up costs.

3. Proactive Financial Planning: Secure pre-approvals for mortgages. Lock in interest rates if possible, mitigating

future rate hikes that could arise from a constrained national budget.

4. Explore Government Programs Diligently: Continuously monitor Sakani and other housing ministry initiatives for

any new or adjusted support packages. Be flexible with location to take advantage of new developments that may have

specific allocated subsidies.

While a $60/barrel Brent price would temper some of the robust growth seen in Saudi construction, strategic planning can

help middle-class families navigate the altered cost landscape effectively.

Try the PriceShock simulator at https://priceshock.app to model your own scenario.