Saudis Look to Wean the Kingdom off Oil Money ; as Global Prices Drop, Prince Unveils Bold Plan to Restructure Economy

By Ben Hubbard; Stanley Reed | International New York Times, April 2, 2016 | Go to article overview

Saudis Look to Wean the Kingdom off Oil Money ; as Global Prices Drop, Prince Unveils Bold Plan to Restructure Economy


Ben Hubbard; Stanley Reed, International New York Times


A Saudi prince has announced an effort to restructure an economy reeling as oil prices fall.

A top Saudi prince has announced new elements of a plan to reduce the kingdom's heavy dependence on oil, amid a drop in world prices that has sent shock waves through the Saudi economy.

The plans include publicly selling shares of the state oil giant, Saudi Aramco, and routing much of its worth into a public investment fund, the prince, Mohammed bin Salman, said in an interview with Bloomberg published Friday.

The fund could become the world's largest, he said, with more than $2 trillion in assets.

"Undoubtedly, it will be the largest fund on Earth," said Prince Mohammed, who is second in line to the Saudi throne and has emerged as the country's most powerful and dynamic official. "This will happen as soon as Aramco goes public."

Although less than 5 percent of Saudi Aramco would be sold, the prince said that the assets from the sale would be transferred to a relatively small government fund called the Public Investment Fund, giving it instant heft and more financial firepower.

Saudi Aramco is the world's leading oil producing company with about 10 million barrels per day of output, or about 10 percent of global production, and reserves of about 160 billion barrels. The company also has large refining and petrochemical interests inside Saudi Arabia and internationally, including in the United States.

At present Norway's fund, called the Government Pension Fund Global, is believed to be the world's largest so-called sovereign wealth fund with about $850 billion in investments.

The announcements came as Saudi Arabia struggled to reformat its economy.

A decade-long boom left the kingdom's economy heavily dependent on oil, which provides most of the government's income, and made the state far and away the country's biggest employer. The drop in oil prices -- to about $39 a barrel from more than $100 a barrel in June 2014 -- undermined that model, leading to huge budget deficits and vast cuts in public spending.

Rachel Ziemba, an analyst at Roubini Global Economics in New York, estimates that Saudi Arabia is burning up its financial reserves at the rate of $10 billion to $15 billion per month. She estimates that the kingdom has about $600 billion left.

There are longer term worries as well. A recent study by consultants at McKinsey warned that with more than half of Saudi Arabia's population under 25, a surge of young people was likely to enter the work force in coming years, requiring the creation of almost three times as many jobs for Saudis than the kingdom created during the 2003-13 oil boom.

Prince Mohammed, a son of King Salman, is leading the effort to find solutions as the head of council that oversees economic policy. Although only about 30 years old and relatively unknown before his father became king last year, he is also the country's defense minister, at a time of great instability in the Middle East and with Saudi forces leading a bombing campaign against Houthi rebels in neighboring Yemen. …

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