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3. MBS’s Economic Reforms: Success or Continued Dependence on Oil?

Since Mohammad bin Salman (MBS) ascended to power in 2015, Saudi Arabia has undertaken a series of ambitious economic reforms aimed at reducing its reliance on oil and diversifying its revenue sources. These reforms are the cornerstone of Vision 2030, a blueprint designed to transform the Kingdom into a modern, diversified global economic power. While undeniable progress has been made in several sectors, a crucial question remains: Is Saudi Arabia truly breaking free from its oil reliance, or is it still heavily tied to black gold?

Revenue Diversification: A Challenging Path

Oil has long been the backbone of Saudi Arabia’s economy, accounting for 70 to 80% of public revenue and 90% of exports. However, faced with the volatility of oil prices and international pressures for an energy transition, MBS launched the Vision 2030 program, prioritizing the development of sectors such as tourism, entertainment, technology and renewable energy.

One of the most emblematic projects under this vision is Neom, a futuristic megacity in the country’s northwest, envisioned as a technological hub and free-trade zone. Designed to showcase Saudi Arabia’s diversification efforts, Neom aspires to be a model of sustainability and innovation. However, its progress remains uncertain, as investment challenges and geopolitical tensions have slowed its development, casting doubt on its ambitious targets.

In an interview with This is Beirut, former French ambassador to Saudi Arabia Bertrand Besancenot noted that The Line, Neom’s flagship project, has already undergone significant revisions. Initially envisioned as a 170-kilometer-long smart city capable of housing 1.5 million residents in Tabuk province, The Line was designed to operate with zero carbon emissions. However, Besancenot revealed that Riyadh has scaled down its ambitions, now planning to complete just 2.4 kilometers for 300,000 residents by 2030.

“The major projects were launched simultaneously and at a rapid pace,” the former ambassador pointed out. “Although Saudi Arabia is deeply committed to an energy transition, it remains highly dependent on oil, as 41% of its GDP still relies on hydrocarbons, and about 70% of state revenue comes from oil,” he explained. Furthermore, “current crude oil prices are estimated at $70 per barrel, but to sustain these projects, the necessary price threshold should be at $90 per barrel at least. This shortfall is forcing Saudi Arabia to reprioritize its investments, shifting focus toward major international events such as the 2030 World Expo and the 2034 FIFA World Cup,” Besancenot added.

Seeking Alternative Resources

Simultaneously, Saudi Arabia has sought to stimulate the private sector and attract foreign investment. According to sources familiar with the matter, “legislative reforms have been implemented to enhance the business environment, including easing restrictions on foreign ownership in certain sectors, streamlining investment procedures, and modernizing the judicial system.” 

These efforts have yielded results in certain industries, particularly tourism. “Saudi Arabia has recorded a significant rise in foreign visitors, driven by the expansion of religious tourism in Mecca and Medina, as well as large-scale leisure and entertainment initiatives such as Riyadh Season,” the source added.

However, despite these initiatives, the oil sector remains the backbone of the Saudi economy. Petroleum revenues still account for a substantial share of the state budget, and while non-oil industries have grown, they have yet to offset the volatility of oil-based income. Economic diversification thus remains a long-term objective, with progress that is still measured.

Sovereign Wealth Fund (PIF) and Global Investments

A cornerstone of Saudi Arabia’s diversification strategy is the Public Investment Fund (PIF). Originally established in the 1970s, the sovereign wealth fund has expanded significantly under MBS’s leadership, who has leveraged it as a strategic tool to reduce dependence on oil revenues. The PIF’s primary goal is to reinvest oil profits into long-term global ventures while simultaneously financing domestic diversification projects.

The PIF has emerged as a formidable player in global financial markets, holding stakes in prominent companies such as Uber, Lucid Motors, SoftBank Vision Fund and Tesla. These investments position Saudi Arabia as a financial powerhouse and generate returns that could eventually counterbalance oil revenues. Additionally, the PIF supports strategic domestic sectors, such as tourism, renewable energy and advanced technologies.

“The fund has also become a driving force behind the Kingdom’s internal economic reforms,” said the aforementioned source. “Projects such as Neom, the Red Sea Project and the development of Qiddiya (a planned entertainment city) are partially funded by the PIF, which plays a crucial role in realizing MBS’s ambitions for Saudi Arabia.”

However, according to a diplomatic source, these investment strategies carry risks. “While ambitious, overseas investments remain vulnerable to global markets’ volatility,” the source explained, adding that “the PIF’s heavy involvement in tech companies and startups entails a significant risk, particularly if these firms struggle to scale or achieve profitability.”

Despite its global reach, the PIF remains heavily reliant on oil revenues to fund its investments, making it susceptible to oil price fluctuations. In addition, geopolitical tensions and regional instability, particularly in the Middle East, could undermine the profitability of sovereign fund projects, especially those based on international partnerships.

Today, the path toward a fully diversified economy that can withstand oil price fluctuations remains long and fraught with challenges. According to observers, Saudi Arabia must continue to foster innovation and expand investments in non-oil sectors while carefully managing the risks associated with its global investment strategies. Over time, it will become clear whether MBS’s reforms will lead to a true transformation or whether Saudi Arabia will remain tethered to the unpredictable oil market.