The Saudi regime is preparing to wean itself off oil after decades of dependency, or so it claims. But question marks hover above this rather far-fetched aspiration. Many are doubting the over-ambitious and young figure Deputy Crown Prince Mohammed bin Salman’s Vision 2030 project as a mere propaganda stunt that is meant to mitigate Saudi’s internal and external economic-political woes.
Last Friday, Mohammed bin Salman announced that the world’s largest oil producer and owner of an oil company reportedly worth more than $2 trillion, is planning to end its heavy reliance on fossil fuels.
“We have developed a case of oil addiction in Saudi Arabia,” the deputy crown prince said after unveiling the plan which he claimed would diversify the Saudi economy.
However, economists have cast heavy doubt over claims that the oil-reliant state would be able to implement the reform plan and significantly decrease dependence on oil in 14 years, let alone in just 4 years as the ambitious deputy crown prince suggested.
The facts are not on the Saudis’ side. With oil comprising forty percent of the kingdom’s GDP and 90 percent of the government’s revenue, accomplishing such a goal is next to impossible.
Experts have made clear that the Saudis’ assertions are not realistic.
In an article titled Saudi can’t quit oil, the Huffington Post’s business reporter Ben Walsh comments:
“It sounds impossible because it is. There is no way the Saudi economy can be reformed to be able to live without oil in just four years. With oil prices at historic lows and looking like they will stay there for a long time, they may wish they could live without oil in a few years.”
This article was an echo of what Jason Tuvey, Middle East economist at Capital Economics wrote in a note to clients which concluded that the plan does not actually reduce dependence on oil revenues but rather makes it seem as such.
“In short, we don’t buy into Mohammed bin Salman’s assertion that Saudi Arabia will no longer by dependent on oil by 2020,” Tuvey writes.
Since the plan is unrealistic in the eyes of economy experts, then the Saudis must be aware of this. Authorities are not basing their economic policy-making on prophecies but rather on “studies” that back the project, or so we’re told. And if they have been subjected to the scrutiny of experts, these specialists would tell us that the Saudi economy will not be able to stand on its own feet without oil within the next decade or so.
So, the underlying question is: why would the Saudis announce plans to minimize oil-dependency if they know it’s unfeasible? This question has a three-word answer: Oil price war.
PR has long been used to build and destroy images and in the oil market there is a lot of room for the manipulative practice. Riyadh has been losing in the oil price war, having lowered prices to hurt other oil-producing nations for politically-motivated purposes such as Iran, and it engaging in a row over terrorism with the US. Since then it has threatened a scorched earth policy when it comes to maintaining and growing its market share.
However, this does not mean that the Persian-Gulf state has secured a win. This may be why it is seeking to change its status as an oil-addicted economy, especially as it struggles with plummeting oil prices.
“There is an alternative view out there that argues that the U.S., more than the Saudis, will control the direction of the market and in the event of an all-out price war holds the commanding position,” according to OilPrice.com.
Explaining why the Saudis’ will not win the oil price war, the article cited the US shale revolution, its dynamic markets, its spare capacity nearing OPEC’s current capacity as leverage while it summed up the Saudi muddle by stating: “Saudi Arabia’s oil wealth – indeed its whole economy – is now in the hands of a 30-year-old prince.”
Meanwhile, Robert Fisk, journalist for The Independent, speculated that Saudi efforts to ‘modernise’ its economy away from oil are just PR tactics aimed at further burying the truth about its exaggerated oil reserves.
“For years, oil analysts have suggested that Saudi reserves are nothing like the kingdom claims them to be – a suggestion which became far more disturbing when Wikileaks disclosed last year that the US embassy in Riyadh had warned Washington that Saudi reserves could be 40 per cent less than we were led to believe,” Fisk explains.
Yet it is no secret that Riyadh has been seeking PR help to pull investors into its market. Earlier this month, the Washington Post reported that the regime has spent millions of dollars on U.S. law, lobby and public relations firms to raise the its visibility in the States.
Politically, observers believe that the ground is being prepared for Mohammed bin Salman’s rise to the throne. Traditionally, however, this is not possible as long as Muhammad bin Nayef remains crown prince.
With Mohammad bin Salman emerging as policy-maker, some believe that the monarchy may be swayed into accepting his succession.
A recent report by the Institute for [Persian] Gulf Affairs cited several sources as saying that Saudi King Salman bin Abdulaziz Al Saud plans to renounce power in favor of his son, the deputy crown prince and defense minister.
There is also talk of Salman trying to convince his brothers of the need to change the norms of succession.
Paul Sankey, a senior analyst at Wolfe Research, told the Financial Times that Mohammad is pushing “the ‘old guard’ Saudi traditions” aside, “notably of behind-closed-doors consensus decision-making.”
All the same, the prospects of the Saudis kicking their inveterate habit are scant.
By Al Waght