The plan was based on oil at $30 per barrel, so a further decline in prices wouldn’t put the kingdom, which relies on crude oil sales for 90% of its revenue, at risk, the prince said.
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Oil accounts for almost 80% of Riyadh’s income – but ministers have move to slash its dependence on the market.
The Vision 2030 plan, he told the Saudi-owned Al-Arabiya news channel, would ensure “we can live without oil by 2020”.
The collapse in oil prices – from more than $100 a barrel in early 2014 to around $40 a barrel this month – has underscored the dangers.
“Saudi Arabia’s new reform agenda is heavily influenced by the sustained dip in oil prices contributing to a budget deficit this year of about $90 billion”, said Usha Haley, a professor of management at West Virginia University, who is an expert on worldwide energy policy.
So big is the state oil company because of its rights to the kingdom’s crude reserves, that selling even 1 per cent of its value would create the biggest initial public offering (IPO) on earth, he said. However, Saudi’s decision to diversify comes amid volatile global oil prices that hit a 12-year-low this year owing to supply glut, while oil producing nations were yet to reach an agreement to freeze or lower oil production output in order to reduce excess supply.
The fall in oil prices is largely due to OPEC kingpin Saudi Arabia’s own refusal to cut output as it seeks to drive less competitive players out of the market, in particular USA shale producers.
Much of the optimism over the reforms stems from the energy and ambition of Prince Mohammed, and the fact that after years of piecemeal efforts at change, the government has put together a broad plan that addresses many problems simultaneously.
Oil has made Saudi Arabia a major economic force.
So Saudi Arabia needs to become less dependent on oil for government revenue and for the jobs and incomes of Saudi nationals. “I think we will need plenty of legislation to implement the plan, mainly on simplifying red tape”, he said.
The prince discussed plans to set up a $2 trillion sovereign wealth fund that would be managed by an outside board of directors.
Saudi Arabia will also introduce a new visa system allowing Muslim and Arab expatriates to work in the kingdom long term the prince announced.
The 1.6 percent pull-back of Saudi Arabia’s index on Tuesday indicated initial euphoria over this week’s economic reform announcement had faded.
Saudi Arabia’s cabinet approved the plan Monday afternoon.
Deputy Crown Prince Mohammed bin Salman.
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Asked where the funds will be sourced for a $2 trillion dollar fund after recent borrowing, he said it would come from transferring the ownership of Aramco to the PIF.
