It’s no secret that the Saudi economy is heavily reliant on oil exports. Oil revenues account for around 80% of the government’s budget, and the longer this global oil glut lasts, the more economic pain will be meted out to Saudi society.
Indeed the Saudi authorities have already seen the writing on the wall with regards to how unsustainable their current model is. The recent Vision 2030 plan maps out all the ways the government will diversify away from oil in the years to come. Whether or not the plan can be successfully implemented is another question altogether.
Any instability in the Kingdom stands as a hugely destabilizing force in the MENA region. As covered previously on Geopoliticalmonitor.com, Saudi society comprises of a rather unique social contract between the people, the religious establishment, and the ruling House of Saud.
As such, the country’s economic performance should be closely watched for any signs of a snowballing collapse that could reverberate in the streets.
The economic data out of Saudi Arabia has not been positive of late.
Domestic demand for energy products is growing at its slowest rate since 2010, a troubling sign as we enter the peak consumption season. Saudi Arabia generally sees its energy consumption peak over the summer, as its primarily oil-fired electricity grid is strained by millions of air conditioners.
That oil-producing sectors are slumping in the current price climate is to be expected. However, the downturn is also starting to spread into other sections of the Saudi economy. The NCB Construction Business Optimism Index found that construction dropped steeply year-on-year over the first quarter by 1.9%. They further concluded that present trends, if continued, could result in a 0.6% drop in the Kingdom’s GDP output.