On Wednesday, President Obama traveled to Saudi Arabia to meet with King Salman and other Persian Gulf partners. Central to the conversation was the bipartisan 9/11 bill that is currently being debated in the Senate, a piece of legislation that may put the president in an awkward position with his Middle Eastern allies.
The President’s visit got off to a rocky start when he arrived in Riyadh on Air Force One, only to be greeted by the governor of Riyadh rather than a senior-level royal.
The U.S.-Saudi relationship is starting to resemble an old couple trapped in a failed marriage, yet neither are willing to separate or get a divorce.
The United States’ dependency on Saudi for oil only complicates matters.
But that is all about to change as Saudi Arabia plans to reduce its reliance on oil by selling shares through an initial public offering, or IPO, of its state-sponsored oil company, Saudi Aramco.
The project is being led by Deputy Crown Prince Mohammad bin Salman, who believes that selling Saudi oil shares will help create more than $2 trillion dollars for a Public Investment Fund (PIF) that is intended to help diversify the Saudi economy.
“I think it’s a smart decision by the Saudi government to go ahead and diversify their economy,” said economist Randa Fahmy Hudome, President of Fahmy Hudome International, who served in President George W. Bush’s administration. “With the price of oil, the way it is right now, I think it’s great foresight. The future economy is very important in that we’re not going to be, certainly in this country and around the world, totally dependent on petroleum resources where renewables and other sources of energy are coming to the forefront.”
The current price of oil is listed at around $43 per barrel (WTI Crude Oil price). Since 2011, this number has fluctuated wildly, ranging from a high of $112 in April 2011 to a low of $29 per barrel last February. It has been on a downward trend since June 2014.
While many believe that the Saudi government is simply streamlining revenue through other sources, Reem Asaad, a columnist and financial advisor in Jeddah, told GVH Live that there is more to it than that.
“Prince Mohammad bin Salman clearly said that everybody thinks that IPO’ing Aramco is about augmenting the revenue, but this is not exactly the case,” Asaad explained. “This is augmenting the revenue and trying to narrow the deficit gap.”
At the beginning of the year, the Saudi government reported a deficit of 367 billion riyals ($97.8 billion), forecasting they could shrink it down to 326.2 billion riyals ($87 billion).
Asaad praised the leadership of both Prince Mohammad bin Salman and Crown Prince Muhammad bin Nayef for not only improving security, but also making the right call for the economy.
“There’s this old adage that says that ‘best things come under tremendous pressure’,” said Asaad. “I think the government now is really sensing the urgency of implementing a change.”
Many believe that the leadership of Prince Mohammad bin Salman, who’s only 30 years old, is benefiting for Saudi millennials.
“[The government] used to create jobs for people,” Khalid Alotibi, an economics student at George Mason University, told GVH Live. “Now, it will use another way by helping people find jobs through investing in education.”
According to the World Bank, the total unemployment rate in Saudi Arabia is 5.5 percent, however, the youth unemployment rate is more than five times greater.
“The young people will be part of the growth of the country,” said Ibraheem Alanazi, a graduate journalist in Washington, DC. “And young people will find jobs … not depending on the government. The jobs will depend on different companies, resources and investments.”
While Prince Mohammad bin Salman wasn’t appointed as the heir presumptive by King Salman, he’ll have quite a substantial role going forward for the Kingdom as they continue to immerse themselves in the global economy.