After experiencing a rare budget surplus in 2022 due to high oil prices, many Gulf Cooperation Council (GCC) countries, including Saudi Arabia, have seen their budget deficits grow. This is mainly due to current oil prices, which remain far below the levels required to balance their budgets.
According to the International Monetary Fund (IMF), Saudi Arabia, the largest economy in the GCC, needs oil prices to reach $96.20 per barrel to balance its budget—more than $20 above the current price. The situation has been further strained by Saudi Arabia’s role in the OPEC+ agreement to cut oil production. Over the past two years, the country has shouldered a significant portion of the cuts, reducing output by 1 million barrels per day, or nearly half of the total cuts promised by the group. This means Saudi Arabia has been selling less oil at lower prices, exacerbating its revenue shortfall.
To address this challenge, Saudi Arabia has intensified efforts to diversify its economy and reduce its reliance on oil. Recent reports indicate that mining is now a central part of the country’s strategy. Saudi Arabia is focusing on exploiting its rich reserves of phosphate, gold, copper, and bauxite. In a recent announcement, Saudi Arabia’s Minister of Mining, Bandar Al-Khorayef, revealed that the country’s mining reserves are now valued at $2.5 trillion, nearly double the previous estimate of $1.3 trillion from eight years ago. The government aims to increase the contribution of the mining sector to the economy, targeting a rise from $17 billion to $75 billion by 2035.
The state-owned Saudi Arabian Mining Company (Ma’aden) plays a key role in executing the Kingdom’s mining strategy. Some of the significant projects being developed include the Jabal Sayid copper project, in partnership with Barrick Gold, and the Al-Jalamid phosphate mine. Saudi Arabia is also investing heavily in exploration and geological surveys, using advanced technology and global expertise to discover new mineral deposits. The country has launched a $182 million exploration incentive program and issued 33 new mining licenses. Additionally, the Ministry of Mining recently announced plans to auction six new licenses for deposits of lead, zinc, copper, and iron.
In a bid to build a domestic supply chain for critical metals, Saudi Arabia signed nine investment agreements in the mining sector worth over 35 billion riyals ($9.32 billion) last month. These deals were signed with companies including Indian mining giant Vedanta and China’s Zijin Group. Khalid Al-Falih, Saudi Arabia’s Minister of Investment, emphasized that these deals would help strengthen the country’s access to vital materials, promote local manufacturing, and enhance its participation in global supply chains.
Economic Diversification Achievements
Saudi Arabia’s push for diversification appears to be paying off. In 2023, the country’s non-oil revenues hit 50% of its total GDP, the highest level in history. The non-oil sector was valued at 1.7 trillion riyals ($453 billion), driven by growth in exports, investment, and consumer spending.
However, Saudi Arabia is not abandoning its core oil and gas industry. During a rare visit by Fortune in May, Saudi Aramco— the world’s largest oil company—revealed several ongoing research projects aimed at combating climate change while continuing to produce large volumes of oil. Aramco plans to cut carbon emissions from each barrel of oil produced by 15% by 2035, which could reduce annual emissions by 51.1 million tons.
Ashraf Al-Ghazzawi, Aramco’s executive vice president for strategy and corporate development, explained that the company does not see a conflict between reducing emissions and continuing oil production. “Combating emissions from conventional energy sources is a very viable option,” he said. Ahmad Al-Khowaiter, Aramco’s executive vice president for technology and innovation, added that the company has significantly expanded its research-and-development efforts, tripling its R&D staff since 2010. Aramco now spends about $800 million annually on R&D, with 60% of that focused on sustainability.
One of the key technologies being implemented is carbon capture. At Aramco’s Hawiyah gas plant, carbon emissions from oil and gas production are captured, transported 50 miles, and injected into an oil well to help boost crude recovery while storing the carbon. Aramco aims to cut the cost of carbon capture by 50%, making it commercially viable. By 2028, the company plans to capture and store 9 million tons of carbon annually in Jubail.
Conclusion
Saudi Arabia’s ambitious plans to reduce its reliance on oil are moving forward with significant investments in the mining sector, technology, and carbon capture. While the country is still heavily dependent on oil for its budget, these initiatives are part of a broader strategy to diversify its economy and secure long-term economic stability. With these efforts, Saudi Arabia aims to maintain its role as a global energy player while positioning itself for the future with a more sustainable and diversified economic foundation.
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