From Oil Riches to Economic Challenges: Saudi Arabia’s Quest for Transformation
The story of Saudi Arabia’s oil problem is a tale of success that gradually morphed into a complex challenge. Almost a century ago, Abdulaziz bin Abdullah Rahman Al-Saud unified the Arabian Peninsula into a single modern Arab state, the Kingdom of Saudi Arabia. His hunch that there must be oil in Arabia, initially dismissed as a desperate ruler’s fantasy, was proven correct when in 1938, Standard Oil of California struck oil at Saudi Arabia’s Dammam number 7 drill site. This marked the beginning of an era of prosperity for the kingdom, with its fortunes only improving as the 21st century ushered in a historical rise in oil prices.
However, the seemingly endless and effortless flow of money and fortune came to a halt when crude oil prices crashed in 2008. Although the direct impacts of this crash on Saudi Arabia were minimal due to the government’s vast financial reserves, the volatility of oil prices became a new phenomenon that posed significant challenges to the economy. The kingdom found itself in a precarious situation where the oil sector, representing close to half of its GDP, was no longer as profitable as it used to be.
The country’s oil problem was further exacerbated by the concept of “peak oil” — a point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline. While past predictions about the timing of peak oil have proven inaccurate, there are now stronger indications that it is nearing. Shell, one of the world’s largest oil producers, has even stated that it believes 2019 was its high water mark for production. This is undoubtedly bad news for Saudi Arabia, although the impact may be less devastating than one might think in the near term due to the country’s cheap production costs.
Recognizing the impending crisis, Muhammad bin Salman (MBS), the de facto ruler of Saudi Arabia, embarked on a mission to transform the kingdom. This transformation was encapsulated in Vision 2030, a plan aimed at improving the government, the economy, and society. The government was to be improved by decreasing corruption, stripping down bureaucracy, and moving government services online. The economy was to be reformed by privatizing certain government services, increasing participation among women in the workforce, attracting increased investment in the country by foreign companies, and growing private sector industries. Society was to be improved by reversing some of the most regressive social policies and introducing elements of the increasingly globalized western lifestyle.
However, despite these ambitious plans, the vision of 2030 is yet to be realized. The private sector’s contribution to the country’s GDP has only increased marginally, foreign direct investment is far below the target, and the unemployment rate of Saudi nationals has slightly increased. Furthermore, the kingdom’s reputation has been tarnished by incidents such as the assassination of journalist and Saudi dissident Jamal Khashoggi, alleged war crimes in Yemen, and the hacking of Jeff Bezos’s phone. These incidents have led to an informal international consensus that despite the more liberal laws and the introduction of entertainment, deep down, Saudi Arabia has not reformed.
In conclusion, Saudi Arabia’s oil problem is a complex issue that requires more than superficial reforms. The kingdom needs to engage in radical, fundamental, systematic change to truly transform its economy and society. The story of Saudi Arabia serves as a stark reminder of the importance of diversification, not only for massive world economies but also for individuals. Being able to do a wide variety of things makes one uniquely valuable and irreplaceable, a principle that Saudi Arabia needs to embrace to secure its place in the world of 2030.
