Saudi Arabia #2: Oil and the Uncertain Future

When the West found oil in Persia/Iran, the Saudis started looking too and found it in 1938, writes Tomas Pueyo. They have the world’s largest onshore and offshore oil fields. Its oil is cheaper because it is nearer the surface, easy to access, and it spurts up easily. Oil today accounts for 80% of government income. That is scary and we will get to why that is the case.

 

The Saudis spend a bigger share of their income on the military than the US, Russia and Iran! Why spend so much? Partly the Shia and Iran threat, obviously.

“Part of it is because the government has no legitimacy beyond that of the sword and religious radicalism, so it must make sure people are not scheming against it. This requires a big security apparatus.”

And also, it creates many jobs in and related to the military, but again controllable by the government. And lastly, its location has too many choke points: the Suez Canal, the narrow strait from the Red Sea to the Indian Ocean, and the Straits of Hormuz. Since they can’t control all of these single-handedly, they chose to tie up with the US for protection. Plus, the Al Saud family fears a strong military – what if they stage a coup? So they are not really keen to have a military that is too strong. Therein lies their (military) problem.

 

The oil future isn’t shining either. With the large oil found in the US itself, and the rise of solar and electric, the US’s interest in Saudi will wane. Far too much of the population is tied to oil-based jobs. Fuel subsidies exist to keep the population happy. No taxes for the same reason. Saudi doesn’t seem to have any plan on positioning itself for a world that needs lesser oil progressively.

 

Then there’s the water. With no rivers and little rain, there is no fresh water. So the need for huge desalination plants. Which of course, is paid with oil money. But what happens when the oil revenues start to decrease?

 

This then is why the current ruler tried, when he got started a few years back, to pivot away from oil. But so far, he has had little success in nurturing other industries. How things will play out in the future is anybody’s guess.

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