The words ‘austerity’ and ‘Saudi Arabia’ have never really been put together in a sentence before this week and the idea that the kingdom is feeling tight with its wallet feels odd. The oil boom that the country rode on since the 70s was bound to end one day, but fortunately, it has been softer than many an economic bust we have seen in other countries in the recent past.

Saudi Arabia’s finances are strained by low oil prices and the government has ordered ministries to cut their spending on contracts by at least 5%. The austerity drive could further slow economic growth in the world’s top oil exporter and hurt the construction industry, where many companies are struggling with deteriorating cash flow and rising labour costs. The Saudi government ran a record budget deficit of nearly $100bn last year and has been seeking ways to narrow the gap. It is laying plans to boost non-oil revenues with taxes, but that will take years to have much impact, leaving spending cuts as the main way to bring state finances under control. The more troubling aspect is that the country relies on just one major export and its local economy is undiversified. There is no other industry that could pick up the slack except for religious tourism, which is seasonal.

While this situation does not bode well for worker remittances to countries like Pakistan, the problem has even more drastic spillovers for the global economy. The OPEC cartel is mulling over plans to freeze oil outputs to raise oil prices. The last time this happened Iran refused to cooperate the world was saved from oil prices going back up. Now Iran may now drop its refusal to join a freeze after restoring most of the crude output that had been curbed by sanctions. Russia, Iraq, Iran and Saudi Arabia are reaching their top production levels. They have gained all the market share they could gain, and now its time to create a shortage.

So here we have it, either a stalling of remittances from falling wages after austerity squeezes the Gulf construction industry, or rising oil prices at home thanks to the Oil Club - or even both as the Saudi economy tries to buoy itself. Saudi Arabia can thus export its problem away to economies like ours, but the real problem remains: Saudi Arabia, and many of the Gulf States are too reliant on oil for revenue. Their economies will face further hardships with rising taxes, unless their planners find a way to generate alternative income from indigenous sources.