Deciphering Riyadh’s words

06 July 2010

Kingdom should use petrodollars to diversify for a future without oil

When Saudi Arabia’s King Abdullah bin Abdulaziz al-Saud told students that he had halted his country’s future oil exploration, his remarks were explained away by analysts as a being lost in translation. 

While the king’s comments may have been taken out of context when he addressed the students in Washington DC on June 3, the remarks on the future of oil in the kingdom should still be considered.

The key is to ensure it uses the huge oil income to build the country’s infrastructure

There are two arguments regarding oil production in the kingdom. The first is that since hydrocarbons are a finite resource, care should be taken to not waste them. Oil and gas are the two most used energy sources in the world and that will not change in the short-term. Nuclear power and renewable energy are both becoming more popular, but they still come nowhere near
oil’s dominance.

With this argument, the case for preserving oil for Saudi Arabia’s future generations becomes compelling.

The second argument is best explained by famous quote from former Saudi Arabian oil minister Sheikh Ahmed Zaki Yamani: “The Stone Age didn’t end because we ran out of stones.” As the world develops new technologies and fuel sources, the demand for oil is going to gradually decline. 

It could be argued that extracting and selling as much oil as possible and reinvesting the money into developing a more diversified industrial base is the way forward. 

As with most dilemmas the answer is a little bit of both. Saudi Arabia should continue its exploration activities, but it should also be aware that it only has a finite amount of time as the world’s premier provider.

The key is to ensure it uses the huge oil income to build the country’s infrastructure and diversify its economy. If Yamani is right, the king need not worry. Saudi Arabia is going to have plenty of oil left for future generations.

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