To the present day, Saudi Arabia is one of the most powerful countries in the world. It holds the power to disrupt the entire global economy. But, the future doesn’t seem very promising for this wealthy economy. While developing as a country, I believe Saudi developed some Faultline's which will make its economy tremble or even collapse. According to me, the major Faultline's are,
1) The Wahabi Fundamentalism
2) Heavy Reliance on Oil
3) Feud with neighboring countries
For most of the years, the Arabian peninsula was ruled by multiple tribal chieftains. Before world war 1 there was a power struggle between two groups. For ease of understanding, I have named them as groups ‘A’ and ‘B’. This struggle was on until WWI began. Group A allied themselves with the Ottoman Empire (Central Powers). Knowing that there is a rival group in the same land, the USA lend support to Group B (allied powers). As the war came to an end with the victory of allied powers, group B emerged to lead the holy country. The most important characteristic of this group was its religious fundamentalism (Wahabism). So they ruled over the country as per the strict interpretation of the religious law which they believed to be the correct interpretation.
Ebin Saad was the monarch, he named the country after him and the current Saudi state came into existence in 1932. Due to extensive tribalism and a potential threat to the nation, Saad married to daughters of every influential tribe, making the count of 20, producing more than 100 children. An interesting fact to know, the current king of Saudi was born when Ebin was 60 years old. It seems that the King was quite dedicated to improve the country’s demographic dividend.
Unfortunately, the fertility of the land was not as great as the king. The vast majority of the country was under deserts, high mountains and arid unfertile land. Saudi Arabia is ranked 13th as per its geographic size and a country this big not having even a sing river is just disastrous. The economy was run by poor taxpayers and the little revenue generated by religious tourism.
Till this year 1932, oil had already been discovered in the neighboring countries of Iraq (1927), Iran (1908), Bahrain (1932) etc. This oil was found with the help of the United Kingdom. Saad too believed that his country had oil, but he didn’t trust the UK due to its colonial/imperial nature. So, he approached the US for the search and extraction of oil in his country.
In 1933, the Standard Oil Company of California (now known as Chevron) began its search and in 1938 the first well was discovered. The business potential here was so high that for their presence and business in Saudi, they created Aramco (Saudi America Oil Company). The Saudi reserves were small but located just below the surface, making the extraction cheap and oil easy to refine. With this discovery, Saudi quickly started climbing the global power ladder.
Saudi was still surrounded by powerful enemies and they were a significant threat to the country’s growth. Saudi was well aware of this and needed someone to protect them. As World War 2 started, Saudi made an agreement, under which it supplied oil to the allied powers and in exchange got security from the US.
By continuing to control the oil prices during important global events, Saudi rose to power and became one of the wealthiest countries. We can say that Saudi’s economy was literally flying on its oil.
The Present
Oil provides for 1/3rd of global energy needs. Saudi is the second-largest producer of oil and the largest exporter of oil in the world. It controls 25% of the global oil resources. Its control over the oil prices is so high that we can even call it the central bank for oil. Saudi has the largest spare capacity of oil in the world. This spare capacity means the dormant oil wells that can be activated at short notice for rapid oil production.
As the world was progressing and moving in a liberal direction, it forced Saudi to change. Saudi became a welfare state by subsidizing food, water, education, healthcare and even became tax-free for citizens. It is still a bit conservative because of the foundation of Wahabism on which the country stands. The country has attempted to ease down the rules but it always results in conflict with the Wahabi people present in the country.
The world has started to shift away from oil and moving towards sustainable and green fuel. America has significantly reduced its reliance on oil and Saudi. So, it is of no interest for America to keep providing Saudi security, but its important allies still rely on Saudi for its oil. Earlier, the US used to support Saudi internationally in every aspect but now it often criticizes the country’s policies or even acts as an opposition on international platforms. Saudi understood this change of approach and then onwards it decided to act as per its interests and not America's interests.
For example, during the Russia-Ukraine conflict, the oil trade of Russia helped it to fund the war. To reduce Russia’s profits, America directed Saudi to increase the supply of oil, so that global oil prices reduce. Saudi saw a golden opportunity and further reduced the supply, enjoying high profits.
British Petroleum reports that 4 out of 6 big purchasers of oil in the world, plan to achieve net zero targets by 2050. In some countries, the price of renewable energy has come to the level of oil prices. The ongoing oil trade is also said to be not profitable for Saudi. As per the reports, Saudi is unable to hit the break-even point since 2015. This loss has led to increasing debt and declining foreign reserves. As the oil trade will reduce Saudi won't even have money to purchase weapons. The Saudi government had long realized this but didn’t do anything to bring a change. The current prince Mohammed Bin Salman has made efforts and is planning to make the country tourism and commerce-driven.
It might sound pessimistic, but I believe under Vision 2030, Saudi has taken over ambitious projects in its hands. The amount of money that is required to finish these projects is so high that if it fails it will be the last nail in the coffin of the Saudi economy. To add to the problem Saudi has a huge unskilled population.
By,
Siddhartha Chopade. TYBA
Roll no. 04
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