Why Saudi Arabia Rely Heavily on Oil and Freshwater

Saudi Arabia is one of the world's largest oil producers, and the country heavily relies on oil revenue to sustain its economy. However, another critical factor that significantly influences its economic and social structure is its lack of freshwater resources. This article explores these factors and the diversification efforts of the Kingdom.

Freshwater: The Real Gold of Saudi Arabia

One of the most striking and often overlooked aspects of Saudi Arabia is its lack of freshwater resources. In a region with intense aridity and extreme heat, the absence of significant freshwater rivers and streams poses a significant challenge for the country. In this water-starved environment, every drop of freshwater is precious, making it a resource that is often considered as valuable as oil.

While some areas have small river systems and oases, they do not provide a sufficient supply to meet the country’s diverse needs. The impact of this scarcity is profound. For instance, irrigation requires water, which is necessary to support agriculture and food production. Without a reliable water supply, Saudi Arabia's ability to sustain its dairy products and fruit juice industries is limited, even though these industries are significant in their own right.

Oil Revenue: The Backbone of the Economy

Oil remains the backbone of the Saudi Arabian economy. In 2021, oil accounted for approximately 80% of the Kingdom's export earnings. With global demand for oil constantly influencing economic trends, the reliance on oil revenue is substantial. This economic reliance has long-term implications for the country's economic diversification efforts.

The government of Saudi Arabia, through Vision 2030, has embarked on a comprehensive plan to diversify the economy and reduce its dependency on oil. One of the key initiatives is the privatization of a 10% stake in Saudi Aramco, the world's largest oil company, through an initial public offering (IPO) that is expected to bring in approximately $100 billion. The proceeds will be used to fund the development of a massive new city on the Red Sea called NEOM, which aims to become a hub for technology, tourism, and healthcare.

Diversification Efforts: Supporting Islamic Pilgrimage and Tourism

While the Saudi Arabian government is focusing on diversifying its economy, it also recognizes the dependence on oil revenue in the short term. Another important source of revenue is the annual pilgrimage to Mecca and Medina, known as Hajj. Millions of Muslims from around the world come to perform this once-in-a-lifetime duty, generating substantial revenue for the Kingdom. The Saudi government provides extensive services, including accommodation, food, transportation, and supervision, and collects fees from pilgrims.

In addition to Hajj, the Kingdom also hosts Umrah, a smaller pilgrimage that is performed throughout the year. These pilgrimages, along with other forms of tourism, contribute significantly to the country's economy.

Other Revenue Streams

While oil and pilgrimage contribute significantly to Saudi Arabia's economy, other sources of revenue are also important. The Kingdom has a wide range of taxes, customs fees, and remittance services that provide additional financial support. For example, customs fees on imported goods, port fees, and various taxes on businesses and individuals help to diversify the Kingdom's revenue base.

The government is also exploring ways to increase revenue from financial services. With the establishment of NEOM and other large-scale projects, the country aims to attract foreign investment and create new job opportunities. These projects are expected to contribute to the growth of the financial sector, further diversifying the economy.

Conclusion

Saudi Arabia's reliance on oil and freshwater resources is multifaceted. While oil remains a critical source of revenue, the scarcity of freshwater presents a significant challenge. However, through Vision 2030 and other initiatives, the government is exploring various avenues to diversify the economy and reduce its dependence on oil. By leveraging pilgrimage and tourism, as well as other revenue streams, Saudi Arabia aims to create a more diverse and sustainable economic framework.