How oil-rich Saudi Arabia is becoming more relevant, not less

Horizons article
July 18, 2023

Since Cristiano Ronaldo joined football club Al-Nassr in January, many famous football players have followed him to Saudi Arabia. Signing these players, who broadcast their experience of living in Saudi Arabia to millions of people online, is part of the Saudi strategy to show the world it is becoming a good place to live, as well as a more progressive society – similar to Dubai.

Indeed, there has been significant progress in the past few years as Saudi Arabia relaxed laws preventing women from traveling alone, driving a car, banking, starting a business, owning property and getting divorced. Tellingly, Foreign Minister Prince Faisal bin Farhan has said Saudi Arabia’s human rights record is going through a "significant reform process" that is being driven by "the needs and desires of the Saudi people”, which suggests Saudi Arabia could do more to transform itself in the coming years.

Boosting the industries of leisure and tourism is a key motive for the changes we are seeing in Saudi Arabia. Both leisure and tourism are pillars of the official Saudi plan to become less dependent on oil by investing massive amounts of capital in other areas (also known as Saudi Vision 2030) and their success depends on how the rest of the world sees Saudi Arabia.

However, the economy is not the only reason for the changes we are seeing. Progressive reform is popular among the Saudi population itself (which is relatively young with 67% of the people under the age of 35).

All of this shows Saudi Arabia is changing fast. The most important change, however, is international. Saudi Arabia is becoming more powerful. Although we have long been assuming that Saudi Arabia is losing power because of the energy transition away from oil, as well as America becoming more energy independent and therefore less dependent on Saudi Arabia as an ally, this does not seem to be the case.

Saudi Arabia’s power is growing based on the way in which it is utilizing its strategic oil resources. A period of relatively high oil prices has given Saudi Arabia an opportunity to turn its Public Investment Fund (PIF) into the world’s biggest sovereign wealth fund, which will significantly strengthen Saudi Arabia’s role as an international investor and create opportunities to diversify its economy.

Source: The Financial Times

Meanwhile, Saudi Arabia restructured its stock market in 2021 to attract foreign investors and it has already reached the top 10 in the world by market capitalization.

Perhaps most importantly, Saudi Arabia has also built a strong relationship with China, which has not only become the biggest importer of Saudi oil, but also brokered a peace agreement between Saudi Arabia and its long-term rival Iran. Indeed, all of the above carries more weight for Saudi Arabia’s position in the world than the uncertainty around its relationship with the US. 

A relevant insight for investors is that the Saudi economy is likely to correlate less with the global economic cycle. By creating the world’s largest sovereign wealth fund, one of the world’s largest stock markets and a strong relationship with China, all of which will allow Saudi Arabia to diversify its economy, the country will enter a different economic cycle than in the recent past. As a result, Saudi Arabia, as well as other countries that follow similar reform trajectories, might offer opportunities for diversification for global investors.


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