As the world's largest oil producing nation, Saudi Arabia is in danger of developing a substantial budget deficit as a result of failing oil prices, it has been claimed.

Dow Jones Newswires correspondent Liam Denning has noted that as the basket price of oil has fallen, so does the realistic budget which will be available to Saudi Arabia next year.

In a recent article, he reported that the 2008 budget - 90 percent of which is sourced from oil revenues - was reliant on a minimum average oil price of $38 a barrel; during the 2008 year, the Organization of the Petroleum Exporting Countries (Opec) basket price stood at $98.50.

However, with oil prices now trading at the lowest level in four years, Saudi Arabia is now in the doubly hurtful position of being required to limit its output even as the price of oil slides.

As a result, Denning claimed that should Opec enforce another supply cut of two million barrels - as many are expecting - the country's budget could shrink to $77 billion.

However, he clarified: "Saudi Arabia needs to keep the world addicted to oil as long as possible, so giving it a breather with lower oil prices isn't a bad thing. As a bonus, this also will challenge Iran and Russia."

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