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You cannot be blind to the tensions in the global oil markets

On Tuesday, Crown Prince Salman bin Abdulaziz Al Saud, who is expected to succeed the king, gave a speech on his behalf at the start of a new session of the legislature, outlining the challenges facing the kingdom.

“This meeting comes in extremely sensitive and delicate international and regional conditions,” according to a text of the speech,which focused on reassuring Saudis that their economic interests will be safeguarded despite the plunge in oil prices.

“You cannot be blind to the tensions in the global oil markets… these are not new developments and we have dealt with it in the past with a firm will and wisdom… and we will deal with the new developments in the same vein,” the Prince said in a separate speech on state television.

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Brent crude prices dropped below US$50 per barrel on Tuesday, as eight of the world’s 10 largest producers maintain their output. The Tadawul, the benchmark Saudi equity market index, fell 6.5% on the day the king was admitted to the hospital, adding to the negative tone as domestic investors worried about the kingdom’s economy.

“Oil prices are now at levels that cause real concern on the streets of Saudi Arabia, with the prospect of succession the icing on top that has caused retail investors to take the [Saudi] market down another leg,” according to Emad Mostaque, strategist at emerging markets consultancy Ecstrat.

To assuage fears, the Saudi government announced a higher budget for 2015 compared to the previous year, raising expenditures on healthcare, education and infrastructure, even as oil proceeds were expected to decline.