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Posted 23 September 2024

Saudi Arabia’s Vision 2030: Balancing Ambition with Economic Realities

Vision 2030 is Saudi Arabia’s blueprint to develop a thriving economy and vibrant society, while importantly diversifying its income sources away from oil. This ambitious plan, however, comes at a significant cost. Since 2016, the total value of real estate and infrastructure investments has surpassed $1.25 trillion, according to Knight Frank’s ‘The Saudi Giga Projects Report’. The volume of projects has increased by 4% from the previous year, with the most expensive being Neom, a futuristic super city projected to cost $500 billion. Large projects require immense resources, often overspend and run past deadlines. We have already seen delays of some projects and a reprioritisation of programmes towards Riyadh. FDI has also been slow to pick up. These all present huge challenges for the country.

In addition to this, we have the topic of oil. Although Saudi Arabia remains the lowest-cost oil producer globally, but it has lost its position as the largest crude oil producer to the United States, which continues to widen the gap.  G7 sanctions on Russia also mean the oil market is becoming more fragmented.

In 2023, Saudi Arabia opted to give away more market share to stabilise prices. Is now the time to reassess this strategy? At the time of writing, crude oil prices are $70.28 per barrel, a decline of approximately 19% over the past year. Lower oil prices are a problem for Saudi Arabia, which requires a price of $96.20 per barrel to break even fiscally, according to the IMF. This breakeven price could rise further if non-OPEC+ supply increases and oil consumption growth in China deteriorates.

So, Saudi Arabia has to consider its options. Does it run a lower deficit by cutting fiscal spending, which may impact Vision 2030 further. Or does it look to increase income from oil revenue? This could be volume driven or price driven. To increase its market share could be painful in the short-term, but, clearly, beneficial to them in the longer term.

Thank you Dane Harrison for the analysis.

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