Saudi Arabia and the Future of Oil

Wikistrat - Saudi Arabia and the Future of Oil cover

On May 17, Wikistrat held a webinar for journalists and commentators to consider Saudi Arabia’s “Vision 2030” proposals, which include leadership changes at the Saudi oil ministry and the partial privatization of Saudi Aramco in order to create a sovereign wealth fund capable of supporting diversification of the domestic economy.

Prof. Shaul Mishal, director of the Middle East Division at the Lauder School of Government at IDC Herzliya, suggested that the Saudis are trying to “adjust the country to a new era” and bring about “independence from oil revenues” through pursuit of an indigenous defense industry, the development of a tourism industry, and the adoption of a more liberal immigration policy.

He noted that Vision 2030 remains simply a vision and that it is unclear how successfully it can be turned into reality. He also commented that great efforts will be needed to mobilize support from the public due to many Saudis being employed in closed, inefficient public-sector organizations that will be resistant to economic restructuring.

Mishal suggested that success will be dependent upon more than financial and economic changes, as the plan is contingent upon psychological and cultural shifts within a Saudi society that may be unready. “It’s the first time the Saudis [the government] have been ready to think in drastic terms about their future.” Accordingly, he concluded that Riyadh is embracing uncertainty on the basis that it is better to “take a big risk without knowing where they’re heading” rather than risk a disastrous situation resulting from adherence to an outdated status quo.

Dr. Ariel Cohen, a non-resident senior fellow at the Global Energy Center at the Atlantic Council, broadly shared this analysis, concluding that the key question is whether the new plan offers a sustainable vision.

For instance, Dr. Cohen said the notion that Saudi Arabia can create competitive non-oil and non-petrochemical industries is questionable, given that many niche industries in the region have already been claimed by others. With Dubai as the Mideast’s financial and transportation hub, and Doha the media hub, he noted that few opportunities are left for Saudi Arabia as it pursues diversification.

Dr. Cohen also noted further tensions within the plan. For instance, the stated goal of producing 50 percent of military equipment domestically would require an education base, industrial tradition and corporate culture that can only be achieved through an increase in the expatriate population — which would have significant political implications. The plan, according to him, is predicated on the contradictory aims of reducing unemployment while simultaneously increasing female labor force participation.

Finally, Dr. Cohen cast doubt on the claim that Saudi Arabia would be able to raise $2 trillion from its Aramco IPO (initial public offering), noting that the figures seemed questionable when compared to the market capitalization of other national energy firms such as Russia’s Rosneft. On this basis, he concluded that Vision 2030 derived from a mixture of legitimate need to improve the country’s economic performance as well as “wishful thinking” as to the ease with which this could be accomplished.

Dr. Thomas O’Donnell, a fellow at American Institute of Contemporary German Studies, echoed these concerns, noting that many (albeit less wealthy) countries from the “Global South” had put forward similar plans only to find that neoliberal market-oriented programs “crafted from the top” encountered significant opposition. He pointed out that here are already complaints within Saudi Arabia that the planned reorganization is centered around Riyadh, leading many in other regions to question their inclusion.

Experts

Shaul Mishal

Prof. Shaul Mishal
Wikistrat Senior Analyst
Director of the Middle East Division at the Lauder School of Government at IDC Herzliya

Ariel Cohen

Dr. Ariel Cohen
Wikistrat Expert
Non-Resident Senior Fellow at the Global Energy Center at the Atlantic Council

Thomas O Donnell

Dr. Thomas O’Donnell
Wikistrat Senior Analyst
Fellow at American Institute of Contemporary German Studies

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