Saudi Arabia Struggles to Adapt to Economic Realities

November 26, 2015Saudi Arabiaby EW News Desk Team


According to Deputy Crown Prince Mohammed bin Salman, Saudi authorities consider cutting subsidies for energy and water, a sign that low oil prices continue to burden the economy, according to Reuters. Salman believes oil prices could fall below $45 a barrel, which explains why the government embarked on various projects in the form of natural gas and nuclear investments. Officials also plan to tax unhealthy foods and raise more revenue by privatizing mines and public lands. The Kingdom derives 80 percent of total revenue from the oil market.

The low-price oil market hurt most energy-reliant economies, but the Saudis withstood the downturn by relying on cash reserves saved over the past decade. This allowed the monarchy to flood the world market with cheap oil to weed out North American competitors, much to the detriment of poorer OPEC nations, such as Venezuela. Saudi Arabia has fared well against the oil-price slump, but cracks have begun to appear within the economy.

The government must also keep royal factions satisfied to maintain power, but this becomes a harder feat when profit margins plummet. Saudi Arabia serves as an autocratic state, but various royal factions vie for political power, and opponents grow bolder as the economy weakens. Dissenters already sent a public letter to King Salman, criticizing his handling of the oil market. Moreover, the war in Yemen gives political enemies more ammunition.

Yemen Quagmire

Detractors criticize the king's decision to appoint his 30-year-old son as defense minister, who also heads the current campaign in Yemen. Saudi Arabia has thus far failed to reinstate the deposed leader of Yemen, who lost his station at the hands of Houthi rebels. Human rights groups cite the abundance of abuses and deaths arising from Saudi airstrikes and ground operations. The oil-rich state survived regional instability in the past, but direct intervention in another country places a greater strain on financial resources and political capital.

Job Creation

The conflict also distracts the nation from mounting problems that will eventually grow worse—most notably unemployment. First, the country needs to focus on job creation, especially when it comes to youth unemployment. Research suggests that young Saudis also harbor concerns about rising crime rates and the standard of living, notes International Business Times. Many women remain out of the workforce, explaining the high unemployment rate overall. Though women can participate in the labor market, many of them cannot find work due to cultural restraints, including laws that restrict women's rights.

Another problem lies with a business community that prefers to hire foreign workers to Saudi nationals. Currently, the private job market mainly produces lower-quality jobs that fail to raise living standards. However, the root of the problem traces back to an over-reliance on the energy market, which prevents job market diversity. With that, the Saudis realize that the time has come to diversify, but a balanced economy that produces more jobs remains out of reach for the time being.

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