By William Close
Behind closed doors in the Saudi capital Riyadh, consultants and government officials are developing policies to prepare the country for what until recently seemed unthinkable: an economy without oil.
For decades, Saudi Arabia has been the world’s largest oil exporter. But revenue from the 7.15 million barrels that it sells every day slumped as the price of crude on international markets fell from a peak of $107 in 2014 to less than $30 early this year.
True, the price has since risen, to around $45 dollars a barrel in late April and early May. But with oil exports accounting for more than 50 per cent of its economy, Saudi Arabia’s losses have been colossal.
The government principally relies on its revenues from Aramco, the state oil company, to operate. Until now, they have enabled it to employ two thirds of the working population and to subsidize most consumables, notably water.
And to do that without citizens having to pay tax.
But things are about to change. Within months.
This is an economic restructuring without precedent.
Mohammed bin Salman, the Deputy Crown Prince, is championing economic reform and has promised the people that in 20 years the country will not depend mainly on oil. He has marshaled western consultants such as McKinsey & Co, and with their help the government has already been totally restructured.
There are now two councils to which all institutions report: the Council of Economic and Development Affairs, and the Council on Political and Social Affairs.
The Economic Council, headed by Mohammed bin Salman, has appropriated all Saudi parastatal organizations including Aramco, which has never been directly responsible to any part of the government other than the Ministry of Petroleum.
There is no precedent for this economic restructuring.
The Deputy Crown Prince has also announced his plans to create a fund with the newly combined resources under the Economic Council. This fund will reportedly have a buying power of close to $2 trillion and will operate much like an investment bank.
Economic upheaval is bringing generational change.
The Saudis are planning to acquire large private corporations and to create a diverse portfolio that they hope will allow the country not simply to sustain itself, but to flourish.
The whole of Saudi society is changing. Mohammed bin Salman, only 30 years old, is exercising power in a kingdom so far ruled by men in their 70s and 80s.
Subsidies have been removed, small taxes have started to be levied and the country’s coffers are not as full as they once were.
With such an unprecedented movement of resources and a shake-up in political norms, the challenge to the Saudi regime is to maintain stability while creating an economy outside of oil. That is no small task.
William Close is an American citizen who decided to take his studies abroad to Jordan. He currently attends King’s Academy and will be attending Duke University next year where he plans to major in Public Policy and with a minor in Arabic.