Survival of Saudi Arabia after the exhaustion of its oil reserves

By Pamkhuila Shaiza on August 13, 2015
Image by Macrovector frpm Freepik

The present kingdom of Saudi Arabia came into being in 1932, after Abdul Aziz ibn Saud reclaimed a traditional homeland after defeating rival tribes. From its foundation till 1938, the Saudis were nomadic tribes living in harsh and inhospitable desert. The new kingdom was one of the poorest countries, with its main income financed by limited agricultural activities and some pilgrimage revenues. This however changed drastically in 1938 with the discovery of an oil reserve in the Al-Ahsa region (Simmons, 2011). Following which Saudi Arabia started to assume a major role in the economic activities of the world. The full scale oil pumping started in the 1940’s in collaboration with the United Stated through the company Aramco (Arabian American Oil Company). The virtually obscure and non-existent country with their nomadic lifestyles was thus done away with and new kingdom suddenly sprang up building new cities, pursuing modern lifestyles (down to these days) and playing a major role in world economic activities.

An economy based on the country’s oil reserves

It is a known fact at the moment that Saudi Arabia possess the largest oil reserves and it also remains an undeniable truth that the country’s sole commodity for livelihood is their oil reserves. Around two-thirds of the world oil reserves are located in the Middle East, among which 25.7% of the world reserves and 40% of the Middle East’s reserves are located in Saudi Arabia alone (Greiner & Semmler, 2008; Hussen, 2012). However, apart from the fact that Saudi Arabia is one of the largest producers of oil, she is also the world’s sixth largest consumer of oil (Li, 2014). Across the world, it is reported that crude oil consumption went from 79 million barrels per day in 2002 to 84.5 million barrels per day in 2009 (Ramady, 2010). Following such demand and consumption,  Saudi Arabia at present pumps 11.5 million barrels per day (Salacanin, 2015), which is much more than what she did more than a decade ago (Waldman, 2015). At this rate of pumping and consumption, the BP Statistical Review of World Energy in 2014 reports (remaining distributed reserves in Chart I) that the remaining oil reserves may run out in 53.3 years, which means that oil reserves will run out by 2057 and that the present Saudis oil Tycoons may be the last generation to possess the oil reserves. Such situation has made people to continually question as to how much oil Saudi Arabia actually has. Aramco gave an official figure of 716 billion barrels of total reserves left (Vidal, 2011), which looks woefully meager as compared to the amount pumped everyday in the country. Unfortunately for Saudi Arabia, she also remains as the only country unable to increase its oil production among its fellow OPEC countries (Algeria, Angola, Ecaudor, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE and Venezuela (Rhodes, 2010). The severity of continuing oil depletion in Saudi Arabia can be attest from World Energy Outlook’s conclusion that America will surpass this country as the biggest oil producer, owing to their larger oil reserves, by 2020 (Thompson, 2012).

Distribution of proved reserves of in compare to Saudi Arabia
Source: (British Petroleum, 2014, p. 7)

Economy of Saudi Arabia after its oil reserves are exhausted

There is no doubt an apprehension as to what possibly can happen when the oil reserves get exhausted. When the ‘black gold’ runs out, Saudi Arabia’s economy is expected to go downhill. In order to avoid such an economic disaster, the country has been making an effort to become a leading world figure in innovation and technology.  Such goals are expected to be met with knowledge-based economy by 2025 (Kalan, 2013).  The main question is, how much time Saudi Arabia has in order to prepare for the exhaustion of oil to happen and what solutions are they looking for in order to maintain its economic prowess and living standard? Outside the oil reserves, Saudi Arabia’s monarchy and its administration in effect has been making some diversification efforts by focusing on setting up universities as key element in maintaining its economic standing when oil resources runs out. Saudi Arabia engages in encouraging students to become more enthusiastic towards taking up innovative projects and in setting up new enterprises. Within the country, Universities and entrepreneurship centres is also in every corner of the country – like the King Abdulla City for Atomic and Renewable Energy (Riyadh), and the Saudi Aramco Entrepreneurship Center (Dhahran) (Kalan, 2013). Graduate and PhD students are encouraged to find renewable resources and ways for treating water- cheaper ways for desalination process (Kalan, 2013).

Many Saudi students are also pursuing education in world’s leading universities, which is expected to bring in innovative human resources. In practice, the government is funding Badir, a new business incubator, in order to promote entrepreneurship and to bring in economic growth eventually (Kalan, 2013). Badir was launched in 2008 to start business incubators in five sectors including the Information and Communication Technology. At present, it supports 70 companies, including popular companies like Enwani and Yatooq (Kalan, 2013). The former is a company that links user’ addresses with their mobile phones, while the latter deals with the production of automatic Arabic coffee machine. Entrepreneurs are also building innovative and successful gaming start-ups like Na3m Games (Kalan, 2013). Other trending internet activities like Twitter, Facebook, YouTube, Instagram, Whatsapp, etc. has also been trending popularly among the Saudis, indicating that the country does not lack in innovative inclination. The country has also started to open up towards women, expecting to generate employment for women in the near future.

Saudi is also exploring other natural reserves

Saudi has also started to mine other mineral deposits, like the kingdom’s large deposits of phosphates to be utilized as fertilizer. Saudi Arabia has also been mining bauxite to be smelt and rolled into aluminum for some years now (Hussen, 2012; Waldman, 2015). With the tension of oil reserve in brink of exhaustion, Saudi Arabia has also been looking forward towards investments in Europe, Asia and the United States. The country aims for investing in equities, bonds, foreign currencies and most importantly real estate and automobile parts. In 2009 alone, the country ventured for $5.3 billion investment in auto parts and technologies in these continents (Marbazan, 2009). The Saudi Arabian Minister of Petroleum and Mineral Resources, Ali bin Ibrahim Al-Naimi  also asserts that Saudi itself in the near future aims to manufacture finished products such as ‘car parts’ in order maintain its economic standing (Waldman, 2015). As part of its investment scheme in the brink of oil reserve exhaustion, Saudi Arabia has also been a staunch supporter of Foreign Direct Investment (FDI) and the country remains as the third largest recipient of FDI in West Asia. FDI is regarded as the most effective way to secure future and provide jobs for the younger generation when oil reserves get depleted. At present, FDI’s main focus is in oil, banking, tourism, real estate, etc. Real Estate Investment Trusts (REITs) is expected to rise rapidly within the country, since this sector continues to expand owing to foreign investments (Oxford Business Group, 2009). Saudi however have rules that applies in real estate that only Saudi nationals are allowed to own properties in Mecca and Medina areas and lease only to Muslims in these regions.


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