Saudi Arabia thought it could sustain depressed oil prices around $50 (and maintain market share) for quite a while, but perhaps NOT this long. Around $75/barrel is regarded as their national finance break-even point.
Plan “A” was to spend their way out of an oil price drop using an arsenal of its financial assets as well as other stimulative measures. $500B of foreign currency reserves, however, are dwindling quite rapidly as oil prices continue to languish. Saudi Arabia has clearly underestimated the ability of US shale producers and even Canadian oil sands producers to push their supply to the market while also cutting costs.
So, Saudi Arabia is moving to Plan “B”…Privatization.
To shore up their economy in the wake of stagnating oil prices, the kingdom is putting practically everything up for sale:
Saudi Arabia is lining up a privatisation of state assets that dwarfs the Thatcher “revolution” of the 1980s, and rivals the 1990s dissolution of Soviet assets in scale and significance. It has hung a “for sale” sign on virtually every sector of Saudi economic life: oil, electricity, water, transport, retail, schools and healthcare. Even the kingdom’s football clubs are due to be auctioned off.
The sell-off programme is the central part of the economic transformation plan envisaged under the Vision 2030 strategy. With oil stuck around the $50 mark, Saudi budgets are creaking and deficits are widening. Around $75 is regarded as the break-even point for the national finances.
But in 13 years, if all goes to plan, the kingdom will be financially stable, with a more dynamic economy and society, less reliance on oil and government spending, and with a thriving private sector that releases the pent-up entrepreneurial spirit of Saudi men and (whisper it in the kingdom) Saudi women (Kane, 2017).
This is a MAJOR IF though…
I have said that Mohammed bin Salman, Saudi’s young crown prince, is bound to cause problems to Saudi Arabia’s stability. To begin with, his legitimacy is very questionable, and has created a lot of blood enemies. His track record with Yemen, Syria, the economy and public finance, the attempt to sever Qatar, etc. were all disastrous. He is also naive and opened up Saudi Arabia too widely to the wrong elements of Western capital. On top of it all, he is double-timing the US with all sorts of strategic deals without consultation, notably buying advanced weapons from and selling oil to China.
After the big money is made by the bankers and oligarchs, his demise will be on the agenda.