Dismayed envoys warn Saudi Arabia may pull plug on defence contracts

He also says Saudi Arabia can mortgage its future as it steps up its bond market interests.

The central bank, which serves as the country's sovereign wealth fund, has been liquidating assets to cover the huge state budget deficit caused by the drop in oil prices. S&P projected the Saudi fiscal shortfall will increase to 16% of GDP this year from 1.5% last year, MarketWatch reports.

"Credit metrics for oil producers like Saudi Arabia are coming under pressure", said Steve Hooker, a money manager at Newfleet in Hartford, Connecticut, who helps oversee $12.5 billion of debt.

"We could lower the ratings within the next two years if the government did not achieve a sizeable sustained reduction in the general government deficit of its liquid fiscal financial assets fell below 100 per cent, " S&P said. Still, public debt in Saudi Arabia is among the world's lowest, with a gross debt-to-GDP ratio of less than 2 percent in 2014.

The downgrade was "driven by fluid market factors rather than changes in the fundamentals of the sovereign", which "remain strong", the ministry said in a statement on the Web site of state-run Saudi Press Agency.

Moody's Investors Service has an Aa3 long-term issuer rating, one notch above S&P, with a stable outlook; Fitch Ratings has an AA rating, two notches above S&P, with a negative outlook. S&P's classification for Saudi Arabia is the same as those of Slovakia, Ireland, Bermuda and Israel. Saudi Arabia have attracted worldwide acclaim for undertaking the world's largest investments across building up of its educational sector and upgrading healthcare facilities, also pointing to the massive opportunity for the furniture markets that lies in these segments.

And he thinks that sooner or later, the Organization of Petroleum Exporting Countries, which represents the likes of Saudi Arabia, Kuwait and Venezuela, will blink and cut production - reducing the global crude supply and, theoretically, raising prices.

Interestingly enough, Saudi Arabia just relaxed the rules in June which allows qualified investors to access the stocks directly as an effort by the government to try to reduce the dependence on crude oil. Goldman's head of commodities research, Jeff Currie, said in October he did not expect oil to break above $50 a barrel next year and saw the chances of a drop to $20 at below 50 percent. The high for this year came in April, but since then the Tadawul All Share Index has fallen 28 percent, which is partially due to the decrease in oil prices.