11 ms·

With electric cars an inevitability, and natural gas outperforming oil; seems MBS is squeezing every cent out of Aramco while it is still worth something.

munk-a 5y ago
I'm curious if the house of Saud could survive Aramco collapsing though. For everything terrible you feel about them - they are constantly shoveling a whole boatload of value into a decent chunk of their population. If Aramco falls I think Saudi Arabia might find a lot of people that were happy to look the other way while they were being paid suddenly asking a lot of questions about national policies.
- fakedang 5y ago
  The average Saudi does not live as comfortable a life compared to the 100k or so members of the Al Saud family and their cronies. You're right about the latter part though. An Aramco failure is going to be a significant dent on MBS' domestic perception.
  - munk-a 5y ago
    Yea, I agree. I'd clarify that "A decent chunk" above is meant to specifically refer to the politically powerful part of Saudi Arabia. Basically, the keys to power - so very few women and none of the poor folk.
    - martinald 5y ago
      Actually, I don't know how true this is. Saudi Arabia has an enormous welfare state - both officially with many subsidies, and and hoc "grants" that you can get off your local royal family representative for one off emergency expenses etc. In many ways this is what is bankrupting the country, much more than the rampant corruption (which is still enormous, but pales into comparison with public spending). The population of Saudi is absolutely exploding - nearly doubling every 20 years. It has a very young population with poor job opportunities, in a very energy intensive place to house people (AC demands and lack of fresh water). This had led to completely unsustainable public spending. The revenue from oil is enormous but it's not growing in line with population and welfare spending. And the Saudi royal family know the people will turn quickly against them if the welfare tap is turned off. They are in a really tricky position. While the royal family is outrageously wealthy, the country itself over the past decade is getting pretty broke. And with such population growth every year it becomes harder and harder to keep up. I imagine this is why MBS is trying to push economic reform so much, almost at all costs, because he knows the game is up. But it is going to be very difficult to turn this quite literal oil tanker around.
      - jimmySixDOF 5y ago
        You are correct. I always thought that the Saudis were practicing a form of UBI, just without the lable. They only added a 5% VAT in 2018 and just this year bumped it to 15% on a "temporary" basis. Both fuel and electricity costs have increased and new payments exist for government services. Saudi is trying to regear the economy and social safety nets away from oil dependency while they still have the income from oil dependency and that is the mission statement of Saudi Aramco today. Looking at actions of the company or the country any other way will cause distortions.
  - whimsicalism 5y ago
    > The average Saudi does not live as comfortable a life compared to the 100k or so members of the Al Saud family and their cronies. Sure, but even the average Saudi has a substantially higher QOL due to Aramco than their peers in most other nations. Nowhere else in the region has a comparable HDI.
    - Marsymars 5y ago
      > Sure, but even the average Saudi has a substantially higher QOL due to Aramco than their peers in most other nations. Nowhere else in the region has a comparable HDI. Looking at the list of countries in the Middle East, it looks like Oman, Bahrain, Cyprus, Kuwait, UAE, Israel and Qatar have a similar or greater HDI than the KSA. (Though combined, they have about a similar population as KSA alone.)
      - 35fbe7d3d5b9 5y ago
        If you're worried as the original poster was about the impact of inevitable global decarbonization on national economies, I have bad news for you about Oman, Bahrain, Kuwait, the UAE, and Qatar.
        fakedang 5y ago
        The UAE and Qatar seem fine, although their sovereign fund will be in stagnation and will be under pressure to maintain their returns. Bahrain, Oman and Kuwait are whole different problems altogether. Bahrain is Sunni-ruled with Shia majority population, so once KSA weakens, expect to see some revolts soon. On the other hand, the UAE will step up its game and intervene in Bahrain should such a situation arise (ironically, Bahrain was going to join the UAE back in 1971, but backed away because they were richer and wanted to be the capital). Kuwait and Oman are already falling to xenophobic pressure. They have begun expelling expats from jobs and looking for inward hiring, but this has had a net negative effect on their economies.
      - munk-a 5y ago
        Considering Cyprus has a gigantic DMZ down the middle of it (in several places) I'm quite surprised it made that list.
  - chucksmash 5y ago
    You're comparing against a pretty gilded group there. Perusing wiki, it looks like Saudi Arabia is a G20 economy with a population of 34 million people, yet only 3.1 million native Saudis are members of the labor force, the private sector labor force is 90% non-Saudi, and still only 12% of Saudis live below the local poverty line. If I'm reading that right, 88% being above the threshold for poverty with only 9% workforce participation for native Saudis seems pretty noteworthy.
    - Gibbon1 5y ago
      Last time I read anything about that from a heretic economist it sounded like the oil industry has priced out most other core businesses. Difficulty their population has also grown 5X in 50 years. Which is not good considering they have little else going on economic other than oil.
- worker767424 5y ago
  It's not Saudi Arabia, but the quote from another Arab state, > My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel
  - rlonn 5y ago
    I think this about sums it up. Seems SA has spent its money instead of investing it wisely, and the next generations will be worse off because of it. Norway serves as a counter example of what they could have done instead, but maybe the Norwegians had the luxury of being a democracy that didn't have a need to bribe the citizens to stave off revolution. Being a dictatorship is always a hard place to be.
- clomond 5y ago
  It would definitely be challenging. This situation is not unique to Saudi and has actually been defined in political theory as the situation of being a “Rentier state”: https://en.m.wikipedia.org/wiki/Rentier_state https://en.m.wikipedia.org/wiki/Rentier_state
dexwiz 5y ago
Electric cars or not, the Saudi wells are likely running lower than advertised. They have been pumping sea water into well to force oil out of others for decades. This is what you do to extend the life of an oilfield. SA has a long history of keeping exact reserve sizes muddled to appear more powerful. Also Russian gas has only accelerated in recent years, their prime competitor.
- eloff 5y ago
  How is natural gas a competitor to oil? I know of nothing that can be powered by both. Natural gas is way more competitive in electric generation, but oil is not commonly used for that if there are other alternatives. These are two very different markets. The US and fracking have been the major competitor to the Saudis lately.
  - lovemenot 5y ago
    >> How is natural gas a competitor to oil? Domestic heating?
    - eloff 5y ago
      Are there domestic heating systems that can work on both oil and gas? I've never encountered that, and it's pretty important in Canada where I live. I've only ever seen gas or electric here.
      - lovemenot 5y ago
        Not using same devices, but the same application. Oil-fired boiler was pretty common heating in UK when I was a kid. Not sure if it is still.
- trhway 5y ago
  > Also Russian gas has only accelerated in recent years, their prime competitor. Russia also achieved its major goal in Syria - maintaining Assad [Shia] regime (part of the Shia belt from Lebanon to Iran) thus preventing [Sunni] SA from building pipeline toward Europe which would have been a significant hit for Russian interests. Without such pipeline - if i remember correctly SA was recently trying to bring some stuff to Poland by sea at cheap prices, yet with no big success so far while Russia is nearing the completion of the Baltic sea floor pipeline directly to Germany. And at the same time US - SA's large market - is running a large fracking of its own and even explores the options of exporting that natural gas, and thus SA seems to start feeling a bit of squeeze, at least when it comes to natural gas. With "greenification" and electrification of economy the natural gas is the near- and mid-term future of our civilization when it comes to fossil fuels, and SA hasn't yet been as successful as they would like in securing the desired top spot in that future.
eyelovewe 5y ago
It’s but a matter of positioning, IIRC BP has this slogan “beyond petroleum” and my guess is that MBS is not the most sensitive human, but rather one of those “impose your will at any cost” golden children who think they actually earned their status, etc, so I’m gonna chalk this up to incompetence meets ostentatious for 100 points, Alex
- thaumasiotes 5y ago
  > children who think they actually earned their status His objective achievements in that area are more than most people could claim. You think it's easy winning a power struggle?
  - mrDmrTmrJ 5y ago
    I don't think it's easy winning a power struggle. But I do think winning a power struggle counter-selects for many traits that make it very hard to create a well functioning economy. In 'Designing a fighter' to win a power struggle, I'd take: ruthlessness, sudden betrayal, and a willingness to use violence. Yet economies and cultures that tend to succeed value investment, rule of law, cooperation, learning, property rights, and finding win-win arrangement. The original article was about how a forced dividend is cutting necessary investment, which does not seem wise, but very much seems like the act of a powerful monarch who doesn't understand what underlies long-term success.

munk-a 5y ago

I'm curious if the house of Saud could survive Aramco collapsing though. For everything terrible you feel about them - they are constantly shoveling a whole boatload of value into a decent chunk of their population. If Aramco falls I think Saudi Arabia might find a lot of people that were happy to look the other way while they were being paid suddenly asking a lot of questions about national policies.

fakedang 5y ago
The average Saudi does not live as comfortable a life compared to the 100k or so members of the Al Saud family and their cronies. You're right about the latter part though. An Aramco failure is going to be a significant dent on MBS' domestic perception.
- munk-a 5y ago
  Yea, I agree. I'd clarify that "A decent chunk" above is meant to specifically refer to the politically powerful part of Saudi Arabia. Basically, the keys to power - so very few women and none of the poor folk.
  - martinald 5y ago
    Actually, I don't know how true this is. Saudi Arabia has an enormous welfare state - both officially with many subsidies, and and hoc "grants" that you can get off your local royal family representative for one off emergency expenses etc. In many ways this is what is bankrupting the country, much more than the rampant corruption (which is still enormous, but pales into comparison with public spending). The population of Saudi is absolutely exploding - nearly doubling every 20 years. It has a very young population with poor job opportunities, in a very energy intensive place to house people (AC demands and lack of fresh water). This had led to completely unsustainable public spending. The revenue from oil is enormous but it's not growing in line with population and welfare spending. And the Saudi royal family know the people will turn quickly against them if the welfare tap is turned off. They are in a really tricky position. While the royal family is outrageously wealthy, the country itself over the past decade is getting pretty broke. And with such population growth every year it becomes harder and harder to keep up. I imagine this is why MBS is trying to push economic reform so much, almost at all costs, because he knows the game is up. But it is going to be very difficult to turn this quite literal oil tanker around.
    - jimmySixDOF 5y ago
      You are correct. I always thought that the Saudis were practicing a form of UBI, just without the lable. They only added a 5% VAT in 2018 and just this year bumped it to 15% on a "temporary" basis. Both fuel and electricity costs have increased and new payments exist for government services. Saudi is trying to regear the economy and social safety nets away from oil dependency while they still have the income from oil dependency and that is the mission statement of Saudi Aramco today. Looking at actions of the company or the country any other way will cause distortions.
- whimsicalism 5y ago
  > The average Saudi does not live as comfortable a life compared to the 100k or so members of the Al Saud family and their cronies. Sure, but even the average Saudi has a substantially higher QOL due to Aramco than their peers in most other nations. Nowhere else in the region has a comparable HDI.
  - Marsymars 5y ago
    > Sure, but even the average Saudi has a substantially higher QOL due to Aramco than their peers in most other nations. Nowhere else in the region has a comparable HDI. Looking at the list of countries in the Middle East, it looks like Oman, Bahrain, Cyprus, Kuwait, UAE, Israel and Qatar have a similar or greater HDI than the KSA. (Though combined, they have about a similar population as KSA alone.)
    - 35fbe7d3d5b9 5y ago
      If you're worried as the original poster was about the impact of inevitable global decarbonization on national economies, I have bad news for you about Oman, Bahrain, Kuwait, the UAE, and Qatar.
      - fakedang 5y ago
        The UAE and Qatar seem fine, although their sovereign fund will be in stagnation and will be under pressure to maintain their returns. Bahrain, Oman and Kuwait are whole different problems altogether. Bahrain is Sunni-ruled with Shia majority population, so once KSA weakens, expect to see some revolts soon. On the other hand, the UAE will step up its game and intervene in Bahrain should such a situation arise (ironically, Bahrain was going to join the UAE back in 1971, but backed away because they were richer and wanted to be the capital). Kuwait and Oman are already falling to xenophobic pressure. They have begun expelling expats from jobs and looking for inward hiring, but this has had a net negative effect on their economies.
    - munk-a 5y ago
      Considering Cyprus has a gigantic DMZ down the middle of it (in several places) I'm quite surprised it made that list.
- chucksmash 5y ago
  You're comparing against a pretty gilded group there. Perusing wiki, it looks like Saudi Arabia is a G20 economy with a population of 34 million people, yet only 3.1 million native Saudis are members of the labor force, the private sector labor force is 90% non-Saudi, and still only 12% of Saudis live below the local poverty line. If I'm reading that right, 88% being above the threshold for poverty with only 9% workforce participation for native Saudis seems pretty noteworthy.
  - Gibbon1 5y ago
    Last time I read anything about that from a heretic economist it sounded like the oil industry has priced out most other core businesses. Difficulty their population has also grown 5X in 50 years. Which is not good considering they have little else going on economic other than oil.
worker767424 5y ago
It's not Saudi Arabia, but the quote from another Arab state, > My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel
- rlonn 5y ago
  I think this about sums it up. Seems SA has spent its money instead of investing it wisely, and the next generations will be worse off because of it. Norway serves as a counter example of what they could have done instead, but maybe the Norwegians had the luxury of being a democracy that didn't have a need to bribe the citizens to stave off revolution. Being a dictatorship is always a hard place to be.
clomond 5y ago
It would definitely be challenging. This situation is not unique to Saudi and has actually been defined in political theory as the situation of being a “Rentier state”: https://en.m.wikipedia.org/wiki/Rentier_state https://en.m.wikipedia.org/wiki/Rentier_state

dexwiz 5y ago

Electric cars or not, the Saudi wells are likely running lower than advertised. They have been pumping sea water into well to force oil out of others for decades. This is what you do to extend the life of an oilfield. SA has a long history of keeping exact reserve sizes muddled to appear more powerful. Also Russian gas has only accelerated in recent years, their prime competitor.

eloff 5y ago
How is natural gas a competitor to oil? I know of nothing that can be powered by both. Natural gas is way more competitive in electric generation, but oil is not commonly used for that if there are other alternatives. These are two very different markets. The US and fracking have been the major competitor to the Saudis lately.
- lovemenot 5y ago
  >> How is natural gas a competitor to oil? Domestic heating?
  - eloff 5y ago
    Are there domestic heating systems that can work on both oil and gas? I've never encountered that, and it's pretty important in Canada where I live. I've only ever seen gas or electric here.
    - lovemenot 5y ago
      Not using same devices, but the same application. Oil-fired boiler was pretty common heating in UK when I was a kid. Not sure if it is still.
trhway 5y ago
> Also Russian gas has only accelerated in recent years, their prime competitor. Russia also achieved its major goal in Syria - maintaining Assad [Shia] regime (part of the Shia belt from Lebanon to Iran) thus preventing [Sunni] SA from building pipeline toward Europe which would have been a significant hit for Russian interests. Without such pipeline - if i remember correctly SA was recently trying to bring some stuff to Poland by sea at cheap prices, yet with no big success so far while Russia is nearing the completion of the Baltic sea floor pipeline directly to Germany. And at the same time US - SA's large market - is running a large fracking of its own and even explores the options of exporting that natural gas, and thus SA seems to start feeling a bit of squeeze, at least when it comes to natural gas. With "greenification" and electrification of economy the natural gas is the near- and mid-term future of our civilization when it comes to fossil fuels, and SA hasn't yet been as successful as they would like in securing the desired top spot in that future.

eyelovewe 5y ago

It’s but a matter of positioning, IIRC BP has this slogan “beyond petroleum” and my guess is that MBS is not the most sensitive human, but rather one of those “impose your will at any cost” golden children who think they actually earned their status, etc, so I’m gonna chalk this up to incompetence meets ostentatious for 100 points, Alex

thaumasiotes 5y ago
> children who think they actually earned their status His objective achievements in that area are more than most people could claim. You think it's easy winning a power struggle?
- mrDmrTmrJ 5y ago
  I don't think it's easy winning a power struggle. But I do think winning a power struggle counter-selects for many traits that make it very hard to create a well functioning economy. In 'Designing a fighter' to win a power struggle, I'd take: ruthlessness, sudden betrayal, and a willingness to use violence. Yet economies and cultures that tend to succeed value investment, rule of law, cooperation, learning, property rights, and finding win-win arrangement. The original article was about how a forced dividend is cutting necessary investment, which does not seem wise, but very much seems like the act of a powerful monarch who doesn't understand what underlies long-term success.