By Jaime Ortega Simo
• What is the future regarding the Kingdom of Saudi Arabia and its love-hate relationship with the United States and Europe?
• If Saudi Arabia’s oil exports cease because of future shortages, how will that affect their financial market?
• Is Saudi Arabia’s backup, plan B, sufficient enough to restructure its economy without the kingdom’s primary exports?
• What would happen to countries who are dependent on Saudi oil — would they suffer an an “economic regression”?
Ehab Al-Kindi
“The way I see the Saudi/Western relationship is like a third world country trying to use whatever resources available to catch up in progression, secure its lands, and keep its traditions at the same time. It is a relationship that seeks building trust and long term collaborations. Saudi Arabia has been playing an important role in participating in all world’s efforts to spread peace and resolve conflicts.
It also takes serious measures and actions to ensure the safety of neighboring countries. The relationship between Saudi Arabia and the west does not only depend on oil. The kingdom also established long-term businesses in the western world. It invested tremendous amounts of money in several places and bought shares in many leading organisations and well recognized industries.
It is true that oil is the main source of economic growth in the kingdom, but the profits from Hajj and Omrah during the holy seasons are also huge. Every year Saudi Arabia hosts over five million Muslim visitors who stay long periods of time. Saudi Arabia would definitely suffer if the world’s dependence on oil ceased or if its oil supply was affected. But that does not mean that the country would get into a severe “economic regression” since the returns from the external investments and the holy seasons should cover most of the expected loss.
The Saudi government is aware that oil will not last forever and cannot be depended upon forever, but the right utilization of oil profits and the good relationships with other countries could be depended upon to secure a promising future.”
Eric Tham
“The ties between Saudi Arabia and the rest of the world are inextricably linked to oil. A couple of months ago Citibank economists reckoned that in the 2030s Saudi Arabia will become an oil importer rather than an oil exporter. This was refuted promptly by the Saudi government.
The Saudis recognize that and have invested in nuclear and renewable energies (in particular solar) to compensate for oil use. Not too many countries actually burn oil for electricity generation for that matter! But how much the Saudi government actually invests in these technologies will be tied to future high oil prices and its pledge for better welfare for its populace – especially after the Arab Spring.
Oil price increases preceded all but two recessions since the second world war.
No doubt that the GDP elasticity to oil has decreased but to say that oil doesn’t play as important a role is still premature. Saudi Arabia is still the main swing producer in OPEC, and its importance cannot be overstated. The impact on the financial markets is a contest on two fronts over the next two to three decades:
1) the gouging appetite on oil by the developing countries and
2) the rise of evolutionary technologies.
Oil demand is forecast to rise by ~25% in 2035 (by the IEA and BP), but if there is anything consistent with such long term forecasts in the past, they are often off the mark!
Technologies to substitute oil use will play an increasing important role (already there were record investments reported by Bloomberg Finance).
In the past we have seen the Saudis fret the rise of such technologies as it curtailed the demand and use of oil, but now they are embracing them.”
Claude Nougat
“A complex question – can’t be answered in one paragraph! The Saudi’s relationship to the developed world will remain unchanged as long as:
(1) oil dependency is not displaced by the rise of green, alternative energies and
(2) the Arab Spring doesn’t land on Saudi shores. So far it hasn’t. The monarchy is still anchored in a good place in spite of Al Qaeda’s Osama Bin Laden’s efforts to dislodge it.
Change, if any, seems to be relegated to the distant future …”
