Is Saudi Arabia Giving Up On Oil? - Forbes

It is now common to hear about Saudi Arabia’s ambitious new investments. Many will have seen advertisements of the new futuristic city, Neom, near the Red Sea. It is meant to run completely on renewable energy, a surprising plan for a top oil exporter.

There are also lavish investments on sports; some say it is “sportswashing” with $6.3 billion spent since 2021. This includes buying clubs overseas and paying an estimated $214 million for football player Cristiano Ronaldo.

Oil seems to be relegated to a background role in one of the top producers of crude—only relegated to third place recently by the U.S. and Russia. Riyadh is not spending its leftovers on such projects, as it runs deficits for its investments.

Instead, Saudi Arabia is betting on new economic sectors while it tries to leave behind the perception that it is a closed or backwards kingdom. Under Crown Prince Mohammed bin Salman, the de facto ruler, many commentators have said that he is on a “quest to become the next Dubai”.

This would imply the monarchy having the same authority, but toning down traditionalist laws. For instance, women are now allowed to drive cars or own businesses, and large events are organized for foreign crowds, including music festivals.

Meanwhile, the Saudi crown prince is also starting to sell the state-owned oil firm ARAMCO. Though it is still under control of the government, it is selling minority stakes. It is considered the most valuable oil firm in the world, with a $161 billion profit in the year to March 2023.

Saudi Arabia is also vying to lead on other fronts. It plans to start extracting its vast mineral reserves. This January, it revised upwards its estimate for untapped mineral resources including phosphates, gold, copper, zinc, and rare earths, to $2.5 trillion, from $1.3 trillion.

The most pressing concerns are not that oil is about to run out, or that it is being phased out by a green transition; they do not seem to be a fear for the immediate future. Though these can become problems later on, there are other more urgent matters for one of the most important oil exporters.

One consideration is not often thought about: Saudi Arabia produces more oil than its neighbours, but it also has a much larger population. The latter has also grown much faster than the former.

Saudi Arabia has 3.6 residents per oil barrel produced, while the United Arab Emirates has 3, Qatar has 2.1, and Kuwait has 1.6. The largest country in the Gulf Cooperation Country, it also has the highest poverty rate: 13.6%.

GDP per capita in 2021 was almost exact to that in 1991, marking three decades of economic stagnation—in constant prices, according to the World Bank. It is also much lower than in smaller petrostates; Saudi Arabia’s GDP per capita is less than half that in the United Arab Emirates—around $20,000 and $40,000 respectively.

Producers outside of the OPEC have taken a larger share of the market, reducing the cartel’s power. Though it accounts for close to 80% of proven reserves, it only produces about 40% of crude. Only with the addition of Russia, the OPEC+ controls half of global production.

Another issue for Saudi Arabia is that many countries do not follow targets. In recent years, members have both been unable to meet production quotas, or deliberately pumped above to bring in more cashflow. Some in the organization are poor countries in dire need of oil revenues.

The U.S. has also been effective in limiting Saudi Arabia and Russia’s efforts to boost prices to $100 per barrel. Riyadh has taken a severe hit to its finances by sacrificing production, but pumping more in North America, as well as releasing from strategic reserves, has worked in the short term.

The WTI, a benchmark price, is now at $72 per barrel after a yearly high of $92 in September. While the OPEC+ would control enough production to act as a monopoly, Saudi Arabia has not been able to order its members to follow its lead.

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Is Saudi Arabia Giving Up On Oil? - Forbes
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