By June 8, 2013 Read More →
Saudi Arabia’s Energy Dilemma

Saudi Arabia’s Energy Dilemma

Of the 11.1 million barrels of oil produced in Saudi Arabia in 2011, over one quarter were consumed domestically – making The Kingdom the fifth largest oil consumer in the world. As Adam Rasmi writes in a recent article for Sada, Saudi Arabia has, somewhat surprisingly,

even recently surpassed Germany’s consumption level, despite having less than one-third of Germany’s population and one-fifth its economic output. Continued consumption growth, if left unchecked, could devastate the country’s economy in the coming years.

How can we explain the growing use of oil? The doubling of the population since the mid 1980s is one part of a story or surging demand; but as Rasmy notes, “the main culprit is the Kingdom’s growing economic prosperity tied with its reliance on oil-fired power generation.” Perhaps unsurprisingly, Saudi Arabia has a remarkably undiversified approach to addressing its energy needs, which are almost entirely met by  oil and gas. According to a 2011 Chatham House report, rising domestic consumption could turn The Kingdom into a net importer of oil within the next three decades. The authors of the report go on to state that

Saudi Arabia’s place in the world oil market is threatened by unrestrained domestic fuel consumption. In an economy dominated by fossil fuels and dependent on the export of oil, current patterns of energy demand are not only wasting valuable resources and causing excessive pollution, but also rendering the country vulnerable to economic and social crises.

As consumption eats further into state revenues – 90% of which derive from oil exports – there has been increasing recognition on the part of Saudi policymakers that high domestic oil consumption must be rationalised. Moreover, as Adam Rasmi observes,

Rising consumption will have other impacts beyond the country’s energy-led economy. Although close to half of Saudi Arabia’s economy is derived from the oil and gas sectors, less than 1 percent of the workforce is employed in these industries. To increase employment, the Kingdom has become a very bureaucratic nation with over 80 percent of its workforce in the public sector. Similar to other Gulf countries, Saudi Arabia has responded to the Arab Spring with generous public sector pay increases, highlighting how the country relies on oil revenues to deter political unrest. But diminishing oil revenues in the future could hinder Saudi Arabia’s ability to use its elaborate public sector and welfare system to combat political turmoil.

Read more: 

http://carnegieendowment.org/sada/index.cfm?fa=show&article=51907&solr_hilite=

Buring Oil to Keep Cool – Chatham House

http://www.nybooks.com/articles/archives/2013/jan/10/will-saudi-arabia-ever-change/?pagination=false

(Wikimedia Commons image courtesy of  Flcelloguy)

About the Author:

William Oliver is Nabateans’ editor for international economics and Middle East current affairs. He obtained his degree in History from the School of Oriental and African Studies in London. While his studies focused on the Middle East in the 18th and 19th centuries, William has a long-standing interest in international finance and the political economy of development. William’s work is aimed at understanding how the Middle East integrates with the global economy, and into the wider geopolitical landscape.

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