In 2016, Saudi Vision 2030 was announced by Crown Prince Mohammad bin Salman to much fanfare. The plan is a long-term vision to bring Saudi Arabia closer to a low-carbon future and move the country away from its reliance on oil exports and fossil fuel extraction. But despite its promises to prioritise non-oil international trade and expand the use of renewable energy, Saudi Arabia faces a truly massive energy transition, and it is unclear how realistic the country’s targets are. As futuristic and exciting as it sounds, is Vision 2030 actually a reliable plan? And will it be enough for Saudi Arabia to solve its energy transition challenge?
Saudi Arabia has to deal with an unprecedented energy and economic transition due to a fluctuating oil price, complicated geopolitical risks, a commitment to reduce its emissions and severe global competition. The world is changing, and Saudi Arabia will soon have to evaluate how to change their economy with it. If the country fails to take this transition head on, their global influence will be severely diminished as oil becomes an increasingly less demanded asset.
To take this transition on, Saudi Arabia is largely relying on its Vision 2030, which incorporates three main pillars:
- To reinforce the Kingdom as the “heart of the Arab and Islamic worlds”
- To become a global investment powerhouse
- To utilise the Kingdom’s geographical advantage to connect Asia, Europe and Africa
This plan also presents three objectives to be achieved by 2030: a vibrant society, a thriving economy and revealing an ambitious nation to the world.
- The first theme emphasises a better quality of life in the future, promoting Saudi Arabia’s cultural heritage, beautiful environment and religious history.
- The second theme, to achieve a thriving economy, promises to build a comprehensive education system to enhance non-energy economic sectors with limitless potential and diversify the Kingdom’s economy with various investment tools.
- The third theme focuses on the progressiveness of Saudi’s government by increasing the portion of non-oil revenues and improving overall government effectiveness.
Vision 2030 is a national socio-political and economic reform to reduce Saudi Arabia’s reliance on crude oil through economic diversification and a series of public services’ development. The primary goal is to increase the portion of non-oil business sectors, such as tourism, banking and the IT sector, and showcase an open-minded and secular national image on the global stage. Actual goals of the plan include afforestation, increasing the range of protected areas, reducing emissions, economic diversification and establishing a futuristic city with 100% renewable energy use.
Five Years On: Saudi’s Vision 2030 Progress
Five years on from the plan’s announcement, the Kingdom of Saudi Arabia has certainly emphasised expanding its environmental projects, including encouraging the use of a circular economy and expanding the proportion of solar and hydrogen projects after Saudi’s active involvement in the recent G20 summit.
As Saudi Arabia is aiming for 50% of its energy to be generated from renewable sources by 2030, the Saudi Public Investment Fund has invested around SR1.5 trillion (US$400 billion) since 2016 in alternative energy, while foreign investments have increased from SR5.321 billion to SR17.625 billion over the same period. In short, Saudi Arabia aims to employ clean technologies and renewable energy to reduce its projected 2030 emissions by more than 130 million tonnes, and lessen Saudi Arabia’s contribution to global emissions, which currently accounts for more than 4% of all planet-wide emissions.
To alleviate the impact of fluctuating and unstable oil prices, Saudi Arabia has taken ambitious steps to diversify its economy and transition away from its reliance on oil. For example, Saudi Arabia’s finance minister Mohammed Al-Jadaan aims to transform the major city of Riyadh into a top 10 international financial centre with a burgeoning private sector, focusing on tourism and other services, that will account for 65% of national GDP by 2030, against merely two-fifths in 2021.
What’s more, the Public Investment Fund, which possesses the Kingdom’s $300 billion sovereign wealth fund, has invested in Neom, a $500 billion futuristic mega-city on the coast of the northern Red Sea which, when completed, will be powered 100% by renewable energy. This city project will also incorporate cutting-edge smart technologies and tourist attractions to stimulate Saudi’s non-oil business sectors and further utilise Saudi’s geographical advantage as a crucial cargo hub. In brief, Saudi Arabia desires to boost its financial industry to reduce its reliance on the oil industry.
Planned location of Neom, a cornerstone of Saudi Arabia’s Vision 2030 project.
Saudi Arabia has also made big promises to develop its renewable energy sector. For instance, the country has been operating the 300MW Sakak plant, their first utility-scale solar power project since April 2021 and has been constructing the 400MW Dumat AL Jandal wind farm, their first utility-scale wind farm within the Kingdom. The Saudi government also announced an investment plan of USD$30 billion in the renewable energy sector by 2025 to reduce domestic reliance on oil. Increasing Saudi Arabia’s renewable energy mix is a crucial component of the country’s efforts to reduce domestic emissions and contribute to a global drawdown of emissions.
Last but not least, the Saudi Crown Prince has announced the “Saudi Green Initiative” and “Middle East Green Initiative” in March 2021. As they have been a dominant character in the oil and gas era, the country is also eager to lead the world in tackling desertification and air pollution, which have become imminent threats to the continued prosperity of the entire Middle East.
Plans have been drafted to plant 10 billion trees to increase vegetation cover and reverse land degradation within Saudi Arabia. Following the “Middle East Green Initiative” ambitious vision, Saudi Arabia and the Gulf Cooperation Council have been collaborating to plant at least 40 billion trees. These ongoing projects have demonstrated Crown Prince Mohammad bin Salman’s ambition and revealed his political gamble to win hearts and minds from this global commitment.
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The Need to Evolve
Saudi Arabia is in a difficult situation. The country desperately needs to transform its economic structure to alleviate the side-effects of fluctuating global demand for oil as a volatile global oil price has been largely destabilising its annual revenue. Crude oil prices declined around 50% in the second half of 2014 due to a booming U.S oil production, geopolitical concerns and shifting OPEC policies that emphasise expanding renewables.
In particular, the boom of U.S. shale oil production played a major role in the oil price plunge from 2014 to 2016 because its cheaper break-even price (from $70/bbl to $40/bbl) made it more competitive in the global energy market. By comparing both Saudi’s fiscal breakeven oil price and the U.S. breakeven shale oil price in 2020, the former cost US$77.9 per barrel whereas the latter cost US$45 per barrel.
What’s more, global investors are discovering new oil fields and even inventing various types of renewable energy in an attempt to reduce reliance on Saudi’s crude oil supply and fulfil The Paris Agreement in order to alleviate greenhouse gas effects. As of 2018, 89% of global CO2 emissions came from fossil fuels and industry. In particular, Saudi Arabia accounts for around 17% of the world’s proven petroleum reserves and the oil and gas sector accounts for half of gross domestic product. As such, Saudi Arabia had a deficit of 2.3% and 13.5% in 2014 and 2015 respectively as proceeds from oil exports decreased. Despite a potential recovery of crude oil demand once again, fluctuating pricing and severe global competition have already distressed Saudi Arabia’s core economy. Hence, a transitional economic reform to broaden their revenue sources is needed.
World Trade Institute Crude Oil price -10 year daily chart
Saudi Arabia’s unbalanced economic structure incurs inadequate job opportunities as non-oil business sectors are not yet well-developed within the Kingdom. As more than half of the Kingdom’s population is younger than 25 and 6 million Saudis will be over the age of 15 by 2030, at least 4.5 million new working-age Saudis will enter the labour market by 2030. Saudi’s government has to create almost three times as many job opportunities in a low-carbon economy by diversifying its job market for the younger generation and avoid instability. Therefore, Vision 2030 advocates supporting sustainable business sectors to increase job opportunities for future younger generations.
Saudi Arabia’s need to transition its economy is exacerbated by climate change, which will also incur severe economic consequences. Saudi Arabia has become a relatively vulnerable country to climate change, and given its continued reliance on fossil fuels in the foreseeable future. Severe potential climate impacts to Saudi Arabia include:
- The Climate and Atmosphere Research Center predicted that approximately 600 million people in the Middle East and North Africa (MENA) will be exposed to ultra-extreme heat waves by the end of the century. More vulnerable inhabitants will suffer from heat exhaustion and heart attacks if heat waves continue in the future.
- Saudi Arabia’s absolute water scarcity level is 500 cubic meters per capita per year due to overconsumption and a lack of reliable renewable water sources.
- The impact of water scarcity exacerbates desertification, thus leading to a potential threat of long-term habitability of ecosystems for both humans and wildlife.
- A rising sea level is another concern for Saudi’s future as most of the country’s refining facilities are in coastal areas.
Saudi Arabia has imminent pressure to achieve economic diversification or they will eventually pay the price. Vision 2030 plans to expand the involvement of the renewable energy business sector in order to maintain its dominant role in the existing energy market and avoid economic and political marginalisation. In sum, the aforementioned economic transformation not only aims to diversify the economic structure but also mitigate the effects of climate change to sustain Saudi Arabia’s national economy.
Saudi’s Vision 2030: A Soft Power Reach and Greenwashing?
“Filthy rich,” “new rich,”“conservative,” “inhibited human rights” and “theocratic rule” are the world’s first impressions and socio-political stereotypes of Saudi Arabia. Yet, the Crown Prince of Saudi Arabia, Mohammed bin Salman, is determined to wipe out these negative stereotypes by the implementation of Saudi’s Vision 2030.
In other words, Vision 2030 represents an enhanced soft power reach by Saudi Arabia that has been ranked 2nd in the Arab region and 24th worldwide in the Global Soft Power Index 2021 whereas Saudi was at 26th last year. According to Professor Joseph Nye, soft power expert at Harvard University, soft power represents a country’s certain extent of charisma to win hearts and minds from other foreign countries in order to strengthen its influence and attractiveness. For example, the Saudi Green Initiative promises to plant 10 billion trees across the Kingdom by 2030. This effort not only demonstrates Saudi’s proactive collaboration to global commitments, but also relates to nation branding in order to enhance the world’s first impression of them.
As soft power is highly associated with nation branding, it affects the final outcome of the national reputation and its external international relations and global diplomacy. In a nutshell, international opinion and first impressions are based on the country’s soft power. If the country has positive soft power on the global stage, they might have easier access to foreign direct investment, boost tourism and business trading, and even increase multi-cultural exchange among countries.
Most importantly, a country with positive soft power and excellent national branding tends to obtain more discursive power and respect in the international realm. For example, Germany has more “say” at different international organisations as Angela Merekl, the Chancellor of Germany, has been leveraging her international acumen for leadership for over a decade. As such, Vision 2030 creates hope for Saudi Arabia as they have been showcasing their various commitments, including environmental aspects, to strive for international recognition and further strengthen their regional power in the post-oil era.
Amin Nasser, CEO of national oil and gas company Saudi Aramco, delivers a speech in 2019
Although the country’s government-owned oil and gas company Saudi Aramco has pledged environmental commitments, they have no concrete plans to reduce oil and gas production before 2030. For instance, Aramco’s website says “We are answering this by focusing on: carbon intensity, sustaining low carbon intensity crude oil, flaring reduction, research and development, emissions to value, impactful collaborations”, yet Aramco also disclosed “exploration activities led to the discovery of seven new oil fields and one new reservoir in 2020” and the Saudi government ordered the Company to increase its fossil fuel production from 12 million barrels of oil to 13 million barrels per day.
Also, Aramco’s 2020 Annual Report clearly states that it “intends to maintain its position as the world’s largest crude oil company by production volume” and “expand gas activities… to meet the large and growing domestic demand for low-cost cleaner energy”. Aramco also bought a majority stake in the Saudi Basic Industries Corporation with $69 billion and the CEO Amin Nasser declared that “it is a significant leap forward…to accelerate Aramco’s downstream strategy and transform our company into one of the major global petrochemicals players.”
These statements clearly reveal that Saudi Aramco intends to continue this lucrative energy business with existing and innovative extracting methods rather than contributing an environmental commitment with concrete plans. In short, Saudi’s Vision 2030 may bring socio-economic transition to Saudi Arabia in the future, yet it does not appear that Saudi Aramco, which provides the biggest source of revenue to the country, will relinquish their enormous economic interest in oil anytime soon.
Vision 2030 is an ambitious plan for Saudi Arabia’s future because the Crown Prince is eager to transform his Kingdom comprehensively. Although there has been some progress in different realms, it is highly questionable that Saudi Arabia is willing to fulfil its environmental commitments due to its lucrative business and complicated internal political dynamics emerging from a long-standing dependence on oil.
In view of this, while economic diversification is occurring, it is unrealistic to expect Saudi Arabia to massively reduce its oil exports in the short term, while interests in the country’s remaining reserves remain so high. The rest of the world, especially the environmental organisations, must take a balanced view and give space for Saudi Arabia to change their economic structure. While Vision 2030 is on the way to accomplishing this, other countries must continue to encourage and incentivise Saudi Arabia to progressively increase its ambitions.