Response Post on Saudi Reform

https://rowanhumphries.wordpress.com/2016/12/02/saudi-reform-dont-hold-your-breath/

This blog post is a response to the post on Mohammed Bin Salman’s push for economic reform in Saudi Arabia. This post was interesting to me because I just recently read about disputes within OPEC about production cuts. These disagreements are a result of resistance to cut production from Iraq and Iran. Initially, there was an OPEC proposal in September that agreed producers would trim output by about 1.2 million barrels a day from October’s levels. Iran has fought these production cuts due to international sanctions that have resulted in lost oil revenue. Iraq is also seeking exemption because of its current expensive security situation that Minister for Foreign Affairs Guillaume Long has described as “basically a war.” During this time, OPEC has asked big producers like Russia to reduce output by as much as 600,000 barrels a day. This resistance has made it difficult for OPEC to reach a global-output limiting deal as well as contributed to the decrease in crude oil prices. Currently, oil prices sit at under $50 a barrel which is almost half the cost of crude oil in 2014. 

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The need to diversify Saudi’s oil dependent economy is obvious after looking at global oil trends as well as the disputes within OPEC. The push for these reforms is interesting because of Saudi Arabia’s obvious economic dependence on oil profits and its position as the worlds largest oil producer. Just last year, 70% of Saudi’s revenues came from oil production.

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Deputy Crown Prince Mohammed bin Salman told Saudi-owned Al-Arabiya news channel that the Vision 2030 plan would allow Saudi Arabia to live without oil by 2020. Salman’s reforms include plans to sell shares in Saudi Arabian Oil Co., known as Aramco. Ownership of the company will be transferred to Saudi Arabia’s sovereign-wealth fund, the Public Investment Fund, to support non-oil investments abroad. The country will also invest in other non-oil sources of revenue such as tourism and mining. Salman claims that these reforms are not dependent on crude oil prices and they can be implemented with prices as low as $30 a barrel. He describes this economic transition as being more about making spending efficient rather than reducing it. These reforms have the potential to revise social contract. The government will aim to open up more privatization in things such as health care and education and introduce fees on luxury items. Although there is a long road ahead for these reforms, Salman has said “2015 was the year of the quick fix, 2016 is the year of the more organized quick fix, and 2017 will be the year the vision will begin.”

https://www.bloomberg.com/news/articles/2016-11-29/iran-says-it-won-t-cut-oil-production-as-talks-remain-deadlocked

http://www.bbc.com/news/world-middle-east-36131391

http://www.wsj.com/articles/saudi-arabia-approves-economic-reform-program-1461588979

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4 thoughts on “Response Post on Saudi Reform

  1. The information offered here makes a useful complement to the original post.

    The game-changer for OPEC has been the technical advances that have made accessible previously out-of-reach hydrocarbons, particularly via hydraulic fracturing and very deep sea drilling, including in the Arctic. Resources accessed via those methods are more expensive to bring to market, and many are simply not worth going after while oil is $40-50. But if OPEC make output cuts and succeed in pushing the price up, those other methods will once again become economic, pushing down OPEC members’ market share. They are also competing increasingly with renewables.

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  2. I really liked this post, it provides a lot of interesting information about how exactly Saudi Arabia plans to carry out economic diversification. Do you think Iran and Iraq will end up cooperating by cutting their oil production?

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  3. I don’t see Iran and Iraq cooperating with Saudi Arabia anytime soon. Both countries aren’t nearly as dependent on oil prices as Riyadh. Because of Saudi’s dependence on oil I think it will be the first to make cuts, especially with oil priced at below $40 a barrel at the end of this year.

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  4. Do you think Saudi Arabia will be able to live without oil by 2020 despite their current reliance on oil revenue (70% of govt revenue in 2015). Furthermore, how will the country’s new economic strategy affect their regime security moving forward?

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