
Saudi Arabia’s Great Run Seems Headed for Trouble - doener
https://www.bloomberg.com/opinion/articles/2019-01-04/saudis-faces-cheap-oil-social-liberalization-climate-change
======
jillesvangurp
The birthrate dropping is a good thing. This happens to countries that are
seeing rising levels in education and security. The Saudi's are not poor or
uneducated; great.

It does create a big baby boom problem. They have a big generation that is
going to grow old relatively healthy (unlike earlier generations) and wealthy.
They are going to be dependent on a new generation that is much smaller and
currently struggling with unemployment. So, the good news is that there should
be plenty to do for these people when their parents retire. The bad news of
course is that at point the saudi's will have some economic issues of having
to produce more with less people, while facing issues with their oil revenue
dropping.

Other issues that are affecting them are the fact that their cities are
becoming inhabitable due to rising temperatures. Regular temperatures above 50
degrees are not very sustainable. They are apparently already planning to
create some new cities to address this.

The political situation is of course the big topic. The royal family's power
is rooted in oil money. As that dries up, the geo-political landscape in the
region will start shifting. There's no shortage of countries in the region
with similar issues and competing agendas to address their issues. E.g. Iran
and Saudi Arabia is a war waiting to happen. The proxy wars have been going on
for decades with the US and Europe having played no small role in the history
of both countries. Weapon exports to the Saudi's and other countries in the
region are substantial.

~~~
duozerk
> They are apparently already planning to create some new cities to address
> this.

Unless they plan to build them somewhere else, I doubt that'll help. Large
swathes of the middle east will become completely uninhabitable, quite
possibly during our lifetime.

~~~
politician
They're planning on building dome cities.

[https://www.popsci.com/united-arab-emirates-mars-city-
pictur...](https://www.popsci.com/united-arab-emirates-mars-city-pictures)

~~~
duozerk
The article says it's a pilot project for Mars habitats. Though let's assume
they were to convert this project to actual domed cities in SA; with a
population of 30+ millions I'm pretty sure the majority of people would be
left outside.

------
rossdavidh
So, if we take a look at Venezuela's situation, in which a system that worked
well enough when oil was >$100/barrel becomes disastrous after the price
drops, and we apply that scenario to Saudi Arabia, it looks pretty
frightening. SA is far more central to world society (e.g. its role in the
world religion of Islam, its role in OPEC) than Venezuela.

Perhaps the world should have done more to help Venezuela, but we at least had
the option of ignoring it (or worse). When (not if) SA goes the way of
Venezuela, it will be a far messier situation for the rest of us, and I don't
think we are even thinking about it, much less preparing.

~~~
Cyph0n
Many Muslims, particularly those outside the Gulf, are looking towards KSA
less for religious guidance. Islamic scholars that are allowed to operate by
KSA have been shown time and again to be hypocritical and have little to no
dignity. Their judgements and positions change with the whims of the king and
crown prince, which lends little to their credibility. The remaining scholars
that decide to stick to their principles end up in prison.

For me personally, the only unique thing that KSA has that you can’t find
elsewhere is Mecca.

~~~
breitling
This is true. The general public the world over is realizing that the Saudi
scholars are "regulated" by the Saudi government...ergo the foreign powers
that keep the ruling family propped up.

They have zero credibility. Mecca and Medina are an exception to this.

------
m23khan
In last 10-15 years, I have seen countless such articles about Saudi Arabia's
troubled horizon. The Country has very deep connection with rest of Muslim
World - they can hold 'brotherly' Muslim countries such as Pakistan and Egypt
hooked on to Oil and Petroleum and can rely on these 'brotherly' countries to
get access to their agricultural lands and can create massive 'alliances' with
rest of Muslim World at their whim (case in point: Saudi-created and Saudi-led
grand military alliance with Muslim Countries).

While I support Humanity's move away from fossil fuels, let's not kid
ourselves -- Muslim World (which represents 2+ billion people) as well as
China and India are in no rush to give up Fossil fuels. What we see now (drop
in oil prices, oversupply) may get corrected over time as the poorer Muslim
Nations like Pakistan and Central Africa region stabilizes and industrializes
thus softening the blow from any dip in business with West.

As for social development across Saudi Arabia -- this is nothing new. Back in
1960s/1970s, Saudi Government had a modernizing phase where they bought
Television and media to the masses. Universities were opened and Education was
encouraged. Ever since then, Saudi men AND women have been sent to West and
other places for their studies. This modernizing phase is just part 2.

You have to understand something about Saudis, Emiratis, Kuwaitis, Qataris,
etc. Average citizen in these Countries may have good amounts of wealth and
may get exposed to secular culture, however, at heart, their population is
very much conservative and strong supports their Royal Family. Case in Point
UAE: Flush with Wealth and relatively liberal -- but local population still
appears conservative and prefers to live in their own social circles.

This (GCC) region is part of World where up until the Grand/great-Grand
parents of current generation lived in desperate poverty since beginning of
time and the society still remembers those harsh times very, very clearly --
given those circumstances and where they are now (almost First world type of
living standards), any population of Human beings would be, very, very
satisfied by their leadership.

------
chriselles
Wouldn’t a meaningful study of Saudi Arabia include the house of Saud?

Anecdotals suggest the House of Saud itself has exploded in size.

Supposedly at a rate far greater that House of Saud’s revenue streams.

Petrodollar recycling programs often in the form of western arms contracts are
a way for the House of Saud and insiders to “clip the ticket” on big dollar
contracts.

The multidecade Al Yamamah contract worth tens of billions with UK defence
industry saw a corruption investigation stopped as a “matter of nationa,
security” due to Saudi pressure.

In commerce, financial reporting often includes “same store sales” for retail
and restaurants.

I wonder if “average Saudi Prince kickback/revenue generated” would be a valid
metric?

I suspect kickback revenue per member of the House of Saud has been in the
decline.

------
benj111
It talks about youth unemployment, but also says the birthrate has crashed
from 6 children/woman to 2.

Surely 1 would solve the other?

Edit: So according to wikipedia, these are the age distributions:

0-14 years: 25.74%

15-24 years: 15.58%

25-54 years: 49.88%

55-64 years: 5.48%

65 years and over: 3.32%

This suggests to me about the right amount of young adults, not too many, with
potential issues in 10ish years time.

Note that "upto 37%" of the population are immigrants, I assume they
disproportionately fall into the 25-54 age range, and that that immigration
could be controlled to some extent if needed.

[https://en.m.wikipedia.org/wiki/Demographics_of_Saudi_Arabia](https://en.m.wikipedia.org/wiki/Demographics_of_Saudi_Arabia)

~~~
_trampeltier
0-14 years: 14.39% (male 724,904 /female 671,524)

15-24 years: 7.64% (male 408,376 /female 332,986)

25-54 years: 70.45% (male 5,297,201 /female 1,537,300)

55-64 years: 6.05% (male 499,579 /female 87,037)

65 years and over: 1.47% (male 106,739 /female 35,669) (2018 est.)

[https://www.cia.gov/library/publications/the-world-
factbook/...](https://www.cia.gov/library/publications/the-world-
factbook/attachments/images/large/AE_popgraph.bmp?1538604982)

Source: [https://www.cia.gov/library/publications/the-world-
factbook/...](https://www.cia.gov/library/publications/the-world-
factbook/geos/ae.html)

~~~
sxates
How did their Male/Female ratio get so far out of whack? Especially in the 25+
range!

~~~
mmosta
migrant labour

------
diminoten
Forgive the naivety, but after a certain point doesn't cash just make more
cash, and didn't the Saudis hit that a long time ago?

I figured they got rich on oil, but could now stay rich through investment.

~~~
swarnie_
Your thinking of Norway's approach where the state uses oil to reinvest and
pay for future generations.

Saudi is trying to do this by spinning off part of Aramco in to public
ownership and by stealing wealth from top officials. realistically they should
have started 30 years ago.

~~~
gaius
Or their investment in SoftBank.

It’s got to be pretty weird to work for or in a WeWork and know what sort of
regime you are sustaining.

------
onetimemanytime
Fertility dropped from 3.8 kids to less than 2 in 10 years, or am I reading
the chart wrong? Did they put a gov official in each bedroom to lower
birthrate or what?

Birthrate of 4-6 is unsustainable (unless, maybe, they're Canada with all that
land and resources) but above 2 is needed. Someone needs to work in 25 years
and pay social security so old people get theirs.

Looks like stormy seas ahead. They can open the spigot for a while but unless
the tank keeps refilling (oil prices might not cooperate) it will run dry.

~~~
raverbashing
The earlier we stop the crap about "we _have_ to be above replacement rates"
(because of outdated pension models) the better

~~~
AvocadoPanic
You could argue replacement rates are not just about pensions, but continuing
your society and culture with people that look like you.

~~~
timbit42
What a vain and outdated way of thinking.

~~~
onetimemanytime
Vain might be called wanting to have your own kids too, but I disagree

------
thedudeabides5
Does anyone know the fiscal breakeven here?

Aka the price of oil at which the Saudi sovereign is cash flow positive?

------
adventured
This article gets a critical point wrong. The absolute worst thing that could
happen to Saudi Arabia is that they continue to have a high birth and
population expansion rate.

The source of their biggest threat in regards to social unrest, is that they
can't afford to placate their massive population expansion since ~1980. Their
population has tripled since roughly 1982 and they have no traditional economy
to support that what-so-ever, it's all oil dependent. The worst thing that
could happen is that you double that population again rapidly, against a
relatively static output of oil and while having still not developed a
traditional economy to support the new population.

It's a pretty simple equation. N oil production divided between Z population.
Every year that goes by that their population increases and their oil
production doesn't keep up, that oil money gets thinner per capita. Boosting
the population doesn't boost their economy much (such that doing so enables
them to better provide for an aging population), as they have practically no
conventional economy.

That's fundamentally why their budget requirement for the price of oil just
keeps going up. It's at least ~$80 per barrel now that they need to balance
the budget [1], so it's nearing a state of becoming permanently impossible to
fulfill their budget demands. Soon it'll be $90, then $100.

They've increased their population by 1/4 in roughly the past decade. That's
far too fast of a population expansion rate based on the structure of their
economy. What they actually need is population contraction, desperately.

That oil economy is now trapped in hell with US shale production always acting
as a price & supply counter that makes it impossible for Saudi to gain ground.
The EIA output estimate for the US for 2018 as recently as three years ago was
roughly two million barrels per day of production lower than what it actually
turned out to be. In one form or another, that's largely coming out of the
pocket of OPEC+ (OPEC + Russia). US shale supply will never stop pressing
against the price & supply of oil and the US is rapidly ramping up its export
capabilities. If the Saudis cut to firm prices, US supply takes it up and
takes their price gains away (which may take months or years to fill out
depending on the macro situation).

Saudi will expand their population by another 12-15% in the next decade,
against this disastrous economic scenario. The outcome is obvious, they won't
be able to placate the burgeoning population and over time it'll rip the
kingdom apart.

If you cut their population in half right now, they'd struggle to build a
traditional economy big enough to put under it in time before there's an oil
crisis in the kingdom. As it is, they appear doomed to an inevitable civil war
or revolt of some sort.

[1] [https://www.spglobal.com/platts/en/market-insights/latest-
ne...](https://www.spglobal.com/platts/en/market-insights/latest-
news/oil/121818-saudi-arabia-needs-84-b-oil-price-to-balance-2019-budget-
analysts-warn)

~~~
Theodores
You are right in that the article doesn't discuss what is going on with not
just U.S. shale oil but also how U.S. oil can be sold on the global market
rather than be exclusively for the domestic market as used to be the case.

For Saudi Arabia the deal with America is that the House of Saud get to stay
in power in exchange for the oil, it is that simple. If there is this
'uprising' that you speak of then it will be Uncle Sam's job to put it down.

The original deal goes back to the time when Britain was supposed to have Iran
and the U.S was supposed to have Saudi Arabia. On the back of this deal the
Saudi 'Royal Family' have built some myth of entitlement to the throne and
being a proper 'royal family'. It is an illusion, there is no legitimacy
there. So long as they wear the 'traditional' outfits and keep the
'traditional' laws nobody is going to see that the emperor has no clothes.

I don't get the impression that there is any type of organisation against this
so-called 'royal family' with a class of people clued up as to how to live in
a non-feudal society. They are far from socialist, mere serfs in an offshoot
of empire, relatively rich because that is where the oil comes from. They
never had industrial capitalism, they went straight from sand and a bit of
tourism revenue to the monster of finance capitalism, trickledown economics
and everything that the IMF demands. Because of the oil they do get a few
empty gifts from the system such as cheap petrol.

For decades those dollars have flowed back to the West in arms sales. To an
extent this clawing back of the money has also happened with luxury goods too.
So the serf-grade workers of Saudi Arabia are doubly screwed, when this
imaginary 'uprising' happens and they impose a government that 'shares the
wealth' they will find it has all been spent on underground aircraft hangars
and bits of paper that are allegedly investments in the Western stock market.

My favourite fact regarding oil is how it all went wrong in the 1970's with
the oil crisis. What only a careful reading of the Wikipedia article tells you
is that the US increased grain prices 300% to pay for Vietnam. This was bad
news for the OPEC countries, places like Iran had kind of got used to
affordable wheat. This wheat had kind of covered the U.S. balance of payments
for oil imports before Vietnam, so it had been a happy arrangement. Our
history tells the 1970's oil crisis very differently, forgetting the wheat
price hikes.

As the article states the government can make quite a few concessions, e.g.
women driving, allowing people to go to the theatre, that sort of thing. They
can buy off those that might resent how things are going by these concessions
yet still keep a tight grip on the deal which is essentially oil for arms and
food.

~~~
adventured
> For Saudi Arabia the deal with America is that the House of Saud get to stay
> in power in exchange for the oil, it is that simple. If there is this
> 'uprising' that you speak of then it will be Uncle Sam's job to put it down.

That certainly used to be the deal. The US no longer has any need of OPEC oil.
The US got 3.3 million barrels per day from OPEC in 2017, down from 4.2m in
2012. I haven't seen the last two months of data for 2018, but I believe that
fell below 3m per day for 2018. That will drop by another million barrels per
day over the next few years.

US oil production is estimated to climb to 16-18 million barrels per day over
the next eight to ten years give or take. OPEC now stands in the way of the US
maximizing its oil position and the value of its enormous production.

The US will benefit from destroying Saudi Arabia at some point. US global
hegemony (courtesy of energy production) is increased if you permanently
decimate Saudi Arabian oil production. All the countries that need Saudi
Arabia's oil, including China, will find themselves into an economically
compromised position and require US oil to fill the demand.

Between now and the switch to all-electric vehicles globally (20-30 years),
the US is _economically_ best served to deplete as much of its oil as
possible.

If you're a nefarious US looking to increase your power, the only question
would be the ideal time to pull the trigger and collapse them. You boost US
production from 12m barrels per day, to 18m, and slash Saudi down by six plus
million by turning their country into a war zone.

18m barrels per day times $85 oil = $1.53 trillion

Versus today's 12m barrels per day at $50 oil = $600 billion

Over ten years, that value gap is reasonably $8 to $10 trillion. How much are
Exxon and Chevron (2 of the 3 largest holders of acreage in the Permian) worth
under that 18m * $85 scenario?

Or push it a notch further: 2029, 20m barrels per day at $100 oil (equivalent
to maybe ~$60 in 2004, a tolerable inflation adjusted level). $2 trillion per
year, the size of Italy's whole economy. It would pour a bonanza of epic
proportions into the domestic US economy. I don't believe either 18m or 20m
barrels per day of US production can co-exist in the next eight to ten years
with Saudi Arabia's ~10-11m production (much less their desire/fantasy for
more production at a higher price to keep up with their budget).

Simple question: what will the US do to realize that value potential? It'll
certainly not be concerned about the collapse of Saudi Arabia, putting it
mildly. Cynically or not, there's a popular opinion about what the US is
willing to do as it pertains to oil; what then will it do for its own,
massive, direct benefit re oil? That benefit scenario is several fold better
than just ensuring oil supply from overseas as in the past. The days of (non-
Canadian) foreign oil being a strategic critical are nearly over, which means
the US allegiance to the Saudi deal is running out. Everyone knows how willing
the US is to flip such an allegiance when it's convenient, there's no scenario
where the US will feel bound to continue with that after it no longer serves
the US interests.

~~~
simonh
That doesn't really make much sense. As the biggest global consumers of oil,
US businesses and the economy in general benefit more from cheap oil than from
expensive oil. Furthermore a Saudi in chaos can't act as a regional counter to
Iran and pro-Iranian forces in Syria, Iraq and Yemen. A civil war in the
kingdom would undo decades of American power broking and defense alliance
building in the region and leave it wide open to exploitation by America's
rivals. Bear in mind SA and the gulf states have huge Shia populations.

~~~
adventured
Does anybody here think the US doesn't operate by special interest lobbying?

At 16m-20m barrels per day, the interests served by that much oil production
at $85-$100 prices, is pretty clear.

The US economy can easily tolerate $85-$100 oil circa 2029. Inflation adjust
that back 25 years to 2004, you get maybe in the realm of $50-$60 oil. The US
will be less oil dependent in 2029 than it is today or in 2004, continuing its
existing trend line of a lot more economic output without a corresponding
increase in oil consumption.

$10-$15 billion in annual arms purchases from Saudi Arabia is meaningless
against $1.5-$2 trillion in annual domestic oil production in my scenario.
They'll just bump the US military budget to offset the difference.

Your last section, describing how the US needs Saudi as a regional counter and
stabilizing agent, assumes the US acts with particular long-term rational
behavior in its pursuits. When have you ever seen that be the case in the post
WW2 era? It's rare. We wouldn't be in the situation we are now with Iraq,
Syria, Iran, et al. if the US behaved the way your theory proposes. The
scenario one would expect based on the last 70 years of US behavior, is
instigated chaos (whether originally intentional or not).

Exxon and Chevron (not to mention a dozen other relevant oil companies) are
far richer and more politically powerful than Lockheed Martin.

~~~
simonh
So when it suits your pre-conceived ideas the US acts predictably in support
of establishment interests, but when it doesn't the US acts irrationally
against it's own interests. If it's irrational, how can you predict anything
about it's behaviour?

~~~
adventured
I think the central issue is that the US is highly susceptible to special
interest lobbying. Yes, I believe you can take that bet to the bank. We see it
every day in Washington and across most segments of the system (from security
to various industries to domestic and foreign policy).

There's no conflict between that and the routinely chaotic and irrational
foreign policy of the US. They can both exist side by side. Some of the
foreign policy irrationality is in fact caused by domestic lobbying, we've
seen that throughout post-agrarian US history where the US Government
intervenes in foreign affairs on behalf of powerful domestic commercial
interests. A further cause of that foreign policy irrationality is at least in
part due to administration changes over time, with which agendas change.
Adminstrations change, domestic lobbying continues. If you need to think long-
term, and you change plans every four to eight years or similar, you're
inevitably going to get chaos and wild unintended outcomes. Consider all the
plan changes from Bush to Obama to Trump in Afghanistan. I'm not arguing that
their goal is necessarily chaos, rather, it's the inevitable product of the
approach.

I'm not arguing that acting on behalf of domestic oil interests that might
want to see Saudi's output hampered, is rational. Indeed, that might very well
be another ideal example of irrational, dangerous behavior that could cause
more instability. When trillions of dollars are at stake, one thing you can
assume is lobbying toward the dollars will be involved.

I don't believe there's any meaningful US Government loyalty to Saudi Arabia
beyond a matter of oil convenience. Trillions of dollars at stake over time as
it pertains to domestic oil production, is worth a lot more than the arms
purchases from Saudi Arabia. As the US oil production figures continue to rise
year after year, the powerful interests represented in that will want higher
prices. Their influence increases as the production does (and Saudi's
influence declines).

Saudi is set to become primarily a competitor of one of the largest, most
important industries in the US. Rather than a relationship of shared security
(they get system security, we get oil security), it'll become a relationship
of growing animosity / tension, which we're already seeing the early
beginnings of (Congress being willing to invoke its war powers to try to force
an end to the US support of Saudi re Yemen; and their increasing willingness
to criticize Saudi generally).

When it comes to the rest, why should the US care about Syria strategically?
The US should have never been over there in the first place. The only people
that want us there are the war hawks.

The next administration after Trump will yield more new chaos, as plans and
agendas change. It's the inevitable consequence to being perpetually in a
position of war and meddling in foreign nations. You're always there as a
nation and the people controlling the meddling come and go, with each change
lighting new unintended fires. I'd argue that any involvement choices made in
the Middle East other than to entirely pull out of the region, are by default
irrational. There's no winning or rational direction if you're doing what
we're doing, only fires to constantly be put out while you're in the muck of
it.

