Saudi Finance Minister: “I Wouldn’t Care If The Oil Price Is Zero”

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[Yves Smith's general impression is that the new Saudi king's views are wishful thinking. The House of Saud is immensely disliked by most of the Saudi Arabian populous, so it is definitely true that recent bouts of austerity have been greeted with open hostility. *RON*]

Haley Zaremba, OilPrice. Posted by Yves Smith at Naked Capitalism, 24 May 2017

Yves here. The ancient Greeks would probably warn the modern Saudis not to risk taunting the gods.

Due to our focus on finance and economics, we cover the Middle East only incidentally and mainstream media focuses on hot topics, like fighting in Syria, efforts to pressure Iran, and Israel v. Palestine. Yet the US recognises that Saudi Arabia represents a huge risk for US policy. The old King Abdullah, who died in 2015, was well liked. The former Crown Prince, now King Salman, by contrast, was unpopular and, to put it politely, seen as not up to the job of keeping the country stable as oil revenues were falling, which in turn would strain formerly generous social safety nets.

So I am putting this post up to encourage informed reader comment, particularly in light of what seems to be wishful thinking about how quickly the country can change the configuration of its economy.

By Haley Zaremba, a writer and journalist based in Mexico City. Originally published at OilPrice

The Saudi Deputy Crown Prince Mohammed bin Salman unveiled the nation’s ambitious “Vision 2030” in an interview with Al-Arabiya in April. The roadmap lays out a wide variety of economic reforms that will transition Saudi Arabia away from oil and into a broader array of investments.

While Saudi Arabia’s economy is currently suffering from an 18-month decline in oil prices and soaring unemployment rates, they are planning for a future in which they won’t have to worry about the price of oil at all. Speaking of the plans outlined in Vision 2030, Saudi finance minister Mohammed Al Jadaan told CNN,“We will not really care much whether the price is 40, 45, 50, 55 at that time because we have gone significantly out of our way to be independent of the oil price…We are planning to totally [end] that dependency that we have been living for the last 40, 50 years. Hopefully, by 2030, I wouldn’t care if the oil price is zero.”

Vision 2030 proposes an economic restructuring that would, in theory, add 6 million non-oil jobs by 2030 and generate $100 billion per year in additional non-oil revenue by 2020 by reducing subsidies for gasoline, electricity and water and introducing a new value-added tax as well as initiatives to foster more non-oil industries like mining and military hardware. They have also suggested grandiose ideas to create the world’s biggest IPO for Aramco (the world’s biggest oil company) and to establish the world’s biggest sovereign-wealth fund worth over $2 trillion to invest in a wide variety of assets. Related: Kuwait: Deeper Cuts Are On The Table

These proposals, groundbreaking in their extent, are especially radical in a country relying on oil for 90 percent of its GDP. Whether these ambitious goals are realistic for Saudi Arabia, whose national deficit is expected to reach 13.5 percent of GDP this year after over a year of decreasing oil prices, remains to be seen.

The 30-year-old Prince bin Salman also announced that he believed the plan could be realised even sooner, eliminating Saudi Arabia’s oil dependency by 2020, in a statement that the Economist referred to as “manic optimism among the youthful new policy-setters of the royal court.”

While the Vision 2030 roadmap is full of general policy suggestions and enterprising statements of intent, it lacks clear directives and detailed strategies. Saudi policy-makers have been promising logistics for months, but have yet to release anything of the sort.

For decades, any efforts to wean the Saudi economy off of oil has been met with opposition ranging from disinterest to disdain. If Vision 2030 is to have any success, it will rely upon bin Salman’s ability to mobilise Saudi youth and instil a desire to work within new fields. As the youngest defence secretary in the world with a youthful outlook and a strong presence in social media, bin Salman may just have the sway it takes to realise this endeavour.

Diversifying Saudi Arabia’s economy could also be the answer to the nation’s growing youth unemployment. Timothy Callen, the assistant director of the Middle East and Central Asia department at the IMF, says that reducing unemployment among young Saudis will be one of the economy’s biggest challenges this year, with the rate already at 12 percent for nationals and 33.5 percent for youth and climbing steadily in conjunction with more and more young people entering employment age.

Saudi authorities have said that they hope the reforms proposed in Vision 2030 will decrease unemployment just 7 percent, with the amount of women in the workforce increasing from just 22 percent to 30 percent stemming from increased education and employment opportunities. The Al-Bayan Center for Planning & Studies has criticized the modesty of these goals in comparison to the brash ambition of Vision 2030 as a whole, arguing that “the hesitancy to establish the requisite social and political reforms that will inevitably support economic reform questions Saudi Arabia’s ability to diversify the economy and attract necessary foreign investment.”

By 2030, the same year that bin Salman claims that Saudi Arabia will have broken up with oil, some experts predict that youth unemployment will increase to over 42 percent as the population continues to boom. These are two vastly different foresights for Saudi Arabia, but one thing is certain: the country will need more than just a vision to secure a brighter future.


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