Saudi Arabia might face a downturn with falling Oil

Saudi Arabia is the world’s largest exporter of oil and gas products and has been so for a long time. The country’s vast cheap reserves of oil has made it one of the richest countries in the world, despite a pathetic human rights record, a despotic & chaotic monarchy and tribal laws. The country despite its riches has failed to develop socially and culturally; and has been blamed as the key funder for the extremist Wahhabi terrorism that is afflicting the world through Al-Qaeda and ISIS. However the good days for the country seems to be coming to an end, with the rise of renewable energy and new oil/gas fracking technologies. Oil and gas prices have crashed, leading to a massive deficit for Saudi Arabia. Though the country has built up massive foreign reserves which allows it to ride these low oil prices over the short term, the long term future for this country looks bleak.

The country does not have any other industry to speak of besides oil and gas. Most of its citizens are spoiled by government largesse and would not find employment anywhere else in the world. Most of the work is done by expatriates, who form a substantial part of the population. The country wants to devise new revenue streams for its economy but given its social and political development, it looks highly unlikely. Once the oil riches ends, Saudi Arabia will look more and more like Egypt if not Yemen, which has been wracked by civil warfare and is a failed state. Most of the skilled workforce will leave the country, once there is no money to be made. Saudi has singularly failed to integrate the skilled workforce, as it does not give citizenship to expatriates. This means that foreigners have no ties with the country, unlike immigrants in USA and UK who have greatly enriched those countries through their skill and hard work.

The country’s energy minister recently said that it wanted to become a major solar products exporter, as fossil fuels become a dying source. However, given the country’s development it is an impossible dream. Saudis do not have any technology for making solar products and even if they import equipment to make them, the country does not have any competitive edge. China, Taiwan and Korea have already captured the solar manufacturing space and it looks unlikely that any other country will be able to replace them. Besides solar manufacturing is hardly as lucrative as extracting oil, at $10/barrel and selling it at $100/barrel. At most solar manufacturers make a 5% margin and face tough competition.