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Page added on October 7, 2015
Saudi Arabia likely to become a failed state as oil revenues decline
A ‘perfect storm’ of interconnected crises could see the autocratic Saudi state disintegrate within ten years, argues Nafeez Ahmed.
Last September, a senior Saudi royal called for a “change” in leadership to fend off the kingdom’s collapse.
In a letter circulated among Saudi princes, its author, a grandson of the late King Abdulaziz Ibn Saud, blamed King Salman for endangering the monarchy’s survival.
Informed observers think such a prospect “fanciful”, but the letter’s analysis of Saudi Arabia’s predicament is startlingly accurate. The House of Saud is on the brink of a perfect storm of interconnected crises that could be the monarchy’s undoing within the next decade.
Saudi Arabia’s primary source of revenues, of course, is oil. For the last few years, the kingdom has pumped at record levels, keeping global oil prices low, and undermining OPEC rivals – who cannot afford to stay in business at such squeezed profit margins.
But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science & Engineering anticipates that a peak in Saudi Arabia’s oil production, followed by inexorable decline, is due for 2028.
According to Texas petroleum geologist Jeffrey J. Brown and Dr. Sam Foucher, though, it’s not just about production. The key issue is translating production into exports, against rising rates of domestic consumption.
Brown and Foucher showed that the inflection point to watch out for is when an oil producer cannot increase the quantity of oil sales abroad, because of the need to meet rising domestic energy demand.
They found that from 2005 to 2015, Saudi net oil exports have experienced an annual decline rate of 1.4 per cent. Citigroup backs them up, recently predicting that net exports would plummet to zero in the next 15 years.
So Saudi state revenues, 80 per cent of which come from oil sales, are heading downwards, terminally.
Saudi Arabia is the region’s biggest energy consumer, domestic demand having increased by 7.5 per cent over the last five years alone.
Demographic expansion, estimated to grow further from 29 million people today, to 37 million by 2030, is a major driver of demand. As the larger population absorbs Saudi Arabia’s energy production, the next decade will see the country’s oil exporting capacity evermore constrained.
To wean domestic demand off oil dependence, Saudi Arabia decided to invest in renewable energy, hoping to free up capacity for oil sales abroad, thus maintaining state revenues.
But earlier this year, this prescient strategy was dumped for military adventurism. The kingdom announced an eight year delay to its €97bn solar programme, which was supposed to produce a third of the nation’s electricity by 2032.
Meanwhile, state revenues have been hit by rocketing military spending for the war in Yemen, as well as from declining profits from its own efforts to keep oil prices low to undermine competing producers.
Now Saudi Arabia’s considerable reserves are being depleted at unprecedented levels, dropping from a 2014 peak of €655bn to €597bn in May – falling by about €10.6bn a month.
At this rate, by late 2018 the kingdom’s reserves could drop as low as €177bn.
King Salman’s response has been to simply accelerate borrowing. What happens when over the next few years, reserves deplete, debt increases, while oil revenues remain strained?
In Egypt, Syria and Yemen, reduced subsidies and rocketing food and oil prices inflamed the grievances that generated the ‘Arab spring’ uprisings.
Saudi Arabia’s oil wealth underpins its ability to fend off the risk off civil unrest through lavish domestic subsidies. Energy subsidies alone make up about a fifth of Saudi’s GDP.
Declining revenues from declining oil exports will translate in the kingdom’s decreased capacity to keep a lid on rising domestic dissent.
About a quarter of Saudis are in poverty, while unemployment is at about 12 per cent, mostly young people – 30 per cent of whom are unemployed.
Climate change is pitched to heighten such economic problems, especially concerning food and water.
At 98 cubic metres per person per year, the kingdom is among the most water scarce in the world. About 70 per cent of domestic water supplies are met through desalination plants, accounting for over half of domestic oil consumption. As oil exports and state revenues run down amid increasing demand, costly desalination won’t be able to keep up.
Saudi Arabia is experiencing stronger interior warming and northern rainfall deficits due to climate change. By 2040, local temperatures could go as high as 4 degrees Celsius, while extreme weather events like droughts and flash flooding would worsen.
This of course could undermine agricultural productivity, already strained from overgrazing and unsustainable industrial agricultural practices that are intensifying desertification.
Most water withdrawal is from groundwater, 57 per cent of which is non-renewable, and 88 per cent of which goes to agriculture.
As 80 per cent of Saudi Arabia’s food requirements are purchased through heavily subsidised imports, the decline in state revenues mean the country will be increasingly vulnerable to global food price fluctuations.
In Iraq, Syria, Yemen and Egypt, the risk of conflict was compounded due to declining state power in the face of climate-induced droughts, agricultural decline, and rapid oil depletion – interconnected trends now unfolding apace in Saudi Arabia.
The implication is that on its current course, the kingdom is on the brink of protracted state-failure, a process likely to unfold over the next decade with increasing visibility.
60 Comments on "Saudi Arabia likely to become a failed state as oil revenues decline"
Hello on Wed, 7th Oct 2015 3:51 pm
Do not despair SA.
Europe will welcome your surplus population with open arms.
apneaman on Wed, 7th Oct 2015 3:53 pm
America won’t, but they’ll come anyway. Better learn how to say Hello in Arabic Hello. You know, so you can greet your new neighbours.
Hello on Wed, 7th Oct 2015 4:00 pm
I know ape, it is certainly disturbing.
More so, to think that a single tax dollar paid nuclear device could decimate the maggots to a reasonable numbers.
Well, maybe I have to take JuanP’s advice and bug out to U-are-gay. 😉
peakyeast on Wed, 7th Oct 2015 4:18 pm
As a European I fully concur with you “Hello”.
The time where Saudi Arabia becomes a failed state will most likely be a close fit to the period where Soylent Green comes into demand – So yes – we will welcome all the soylent green we can eat.
apneaman on Wed, 7th Oct 2015 4:19 pm
Well, lucky for them you only get to push the button when you play fantasy video games. You should embrace the cycles of history. Why not? It cannot be stopped and retard empire foreign policy makes it happen in your lifetime. You’re privileged – you got to benefit from it and you get to witness the end. IMO this time will be the final wave of migrations for apes. Apes the world over will be running around like Sea Peoples or Goths for the next couple of decades… Barbarians to the bitter end.
zoidberg on Wed, 7th Oct 2015 4:20 pm
This article is correct. Sa is doomed and deserves it.
apneaman on Wed, 7th Oct 2015 4:23 pm
So are you zoid and so do you. Doubly so. Of course for you guys the greaest enemy is in the mirror.
Hello on Wed, 7th Oct 2015 4:24 pm
You are again correct Ape.
The world is ever changing, nothing remains. The leaders of today will be the losers of tomorrow and so does the cycle of life repeat.
I was just hoping that the winners of today would extend their ‘win’ a bit longer through clever governing.
But that is not the case, as the old saying goes, smart people have a job, stupid people are unemployed or go into politics.
apneaman on Wed, 7th Oct 2015 4:36 pm
I don’t have a “job” don’t need one and I’m almost 50. I guess I’m stupid and will remain so till I die. Enjoy the rat race smarty.
zoidberg on Wed, 7th Oct 2015 4:38 pm
Apnea, you are so linear. You speak of cycles and then talk about the end. its just another beginning. That’s what a cycle is.
GregT on Wed, 7th Oct 2015 4:44 pm
I’m also unemployed. 53 years old, own my own home outright, and no debt at all. Retired and enjoying my life, with nobody to answer to, except for the wife.
I think I’ll go fishing tomorrow, if the rain lets up. If not, I might split some firewood, if I feel like it.
Enjoy your “smart” life Hello. I’ll stick to my “stupid” one. TYVM. 🙂
Hello on Wed, 7th Oct 2015 4:44 pm
Thank you Ape, in coming clean and admitting that you’re a moocher. Not many have the courage to do that.
Zoid, I’m sorry I don’t follow your writing. As per science there is an end to the earth, yet there are hopefully many cycles of life to that point.
GregT on Wed, 7th Oct 2015 4:46 pm
“You speak of cycles and then talk about the end. its just another beginning. ”
Another beginning, in all likelihood, without the human species. Just another cycle Zoid. No biggie.
Hello on Wed, 7th Oct 2015 4:46 pm
Zoid, I’m sorry I think I have mistaken a comment you made towards Ape for one directed at myself.
zoidberg on Wed, 7th Oct 2015 4:52 pm
What will be will be. I wouldn’t bet against humanitys odds though.
I suppose in the long run it’ll all end but I don’t think peak oil or co2 from burning it will.
I mean it’s not all roses but end of humanity? I doubt it.
Hello on Wed, 7th Oct 2015 5:06 pm
GregT.
I’m sorry I did not want to offend you (or Ape).
My simplistic comment was directed at people that are not employable, not people who are well off and able to enjoy a life of leisure.
GregT on Wed, 7th Oct 2015 5:12 pm
Hello,
There is far more to life than being ’employable’, and quite frankly, it is ’employment’ and ‘consumerism’ that are destroying our planet. I understand that in our current societal structure it is difficult to opt out, but the longer this is allowed to continue, the worse off all of us will be.
Davy on Wed, 7th Oct 2015 7:02 pm
I am retired and I just put in 12 hours. I am covered in dust and beat but I accomplished much. If you enjoy work do you call it work or leisure?
Boat on Wed, 7th Oct 2015 7:07 pm
In 1950 there were only 4 million Saudi. Now there are 40 million. Oil=sex.
Apneaman on Wed, 7th Oct 2015 9:11 pm
Hello, a moocher? No retard. An investor from a young age and frugal and a DIYer. While all my buddies were buying Mcmansions, dressing up their cars, and shitting out high end kids to suck up my tax dollars, I spent 5 consecutive years taking long term new construction camp jobs and/or living out allowance jobs and spent the rest of the time mostly living in my camper to pay off an investment loan ASAP. An investment that I largely live off today. Not a lot comparatively and I don’t have too many goodies anymore (ball&chain), but I do not owe one red cent to anyone and when I do work I am my own boss. Have fun running the debt rat race slave. It will be over soon enough and then the survival rat race will be on. Next time you’re stuck in commuter traffic, remember that I’m sitting on my ass laughing at ya, dooming away, reading books, cooking & baking, going for walks or whatever the fuck I want.
wildbourgman on Wed, 7th Oct 2015 9:29 pm
Boat, I’ve talked about this before I can’t remember if it was here or the Oil Drum. My conjecture was, if Saudi Arabia could be inhabited with 4 million people before becoming an oil producer and they have 40 million people today, how horrible does it get in order to get back to a number that nature can handle?
Now can they make strides in mitigating that with renewables and proper investment strategies? Ok I can see that.
Or do they have a massive collapse and civil war at the first apparent sign that they are not the top dog? I can see that too.
Apneaman on Wed, 7th Oct 2015 10:14 pm
Hey boat
US 152.3 million (1950)
US 321 million today, plus what 10, 20 million illegals? More?
Both the USA and the KSA are scraping the bottom of the barrel for the dregs. Who’s got more debt? Which population is heavily armed and stupid? Which country has over 800 military bases to support and all the personal? The MIC will lose their best customer, after uncle Sam, the second the KSA goes under. Thousands of layoffs overnight. It’s that whole interconnected thing again.
“Saudi Arabia is Americas top customer. Since 1990, the U.S. government, through the Pentagons arms export program, has arranged for the delivery of more than $39.6 billion in foreign military sales to Saudi Arabia, and an additional $394 million worth of arms were delivered to the Saudi regime through the State Departments direct commercial sales program during that same period.”
http://fas.org/asmp/profiles/saudi_arabia.htm
Bloomer on Wed, 7th Oct 2015 11:57 pm
Saudi Arabia, the land of religious fanatics, oppressive monarchs, barren desert and depleting oil reserves is a country destine for ruin.
They had it all and pissed it away.
apneaman on Thu, 8th Oct 2015 12:06 am
Bloomer, the land of religious fanatics indeed.
Christians ‘serious about their faith’ should consider getting guns, Lt. Gov. says
https://www.washingtonpost.com/news/acts-of-faith/wp/2015/10/05/christians-serious-about-their-faith-should-consider-getting-guns-lt-gov-says/
MrNoItAll on Thu, 8th Oct 2015 12:24 am
It isn’t JUST declining oil revenues that. Saudi Arabia is in a whole world of shit. It is going to take a lot of very expensive and bloody propping on America’s part to keep SA propped up. I’m sure America will give it a stupendous effort. That effort will ultimately fail.
It’s Time for the United States to Start Worrying About a Saudi Collapse
http://news.yahoo.com/united-states-help-saudi-arabia-192926234.html
dooma on Thu, 8th Oct 2015 12:35 am
Saudi Arabia is the perfect mirror of Easter Island sans the island.
With a growing and already disenfranchised glut of unemployed “30 something” aged men, SA has been on the CIA radar for many years-just check out their fact book.
It is hardly surprising that they have turned their hand at a little bit of warfare.
I wonder who they learnt that trick from…..
apneaman on Thu, 8th Oct 2015 1:48 am
Bloomer, the land of religious fanatics indeed.
http://creationmuseum.org/
Noah’s Ark Theme Park Developers Sue Kentucky Over Lost Tax Rebates
http://www.businessinsider.com/r-noahs-ark-theme-park-developers-sue-kentucky-over-lost-tax-rebates-2015-2
charmcitysking on Thu, 8th Oct 2015 2:30 am
Ape,
Anytime a commenter provides a link or says something unsavoury about virtually any other country in the world, why do you feel the need to counter it with your own link/unsavoury comment about the USA?
I tend to agree with much of your analysis, but Jesus man, every word out of your mouth is trumpeting the collapse of the USA/humanity. It’s nauseating.
zoidberg on Thu, 8th Oct 2015 9:24 am
I second that. Its like kunstler, mostly cogent but armed with an agenda beyond the truth and a snide deprecating way.
Quite frankly it’s a peak oil community phenomenon in my opinion.
apneaman on Thu, 8th Oct 2015 10:01 am
charmcitysking, there are plenty of happy hopey sites on the internet. In fact it’s probably a million to one ratio – maybe more. Every word is an exaggeration and you might want to ask yourself why you find it nauseating.
Davy on Thu, 8th Oct 2015 10:03 am
Zoid to be fair you can’t blame the hatred just look around at the stink in the U.S. The ugly anti-Americans have gone too far though. Agendas are similar to raw power they get corrupted and extreme. If given free rein like the U.S. dominated mainstream media message it becomes downright dangerous.
But I am not a sheeple, I don’t like agendas period. If it smells like shit most cases it is. I have rarely found shit smell on sale. It generally is always associated with a turd.
Davy on Thu, 8th Oct 2015 10:10 am
I might add unfortunately I am agenda driven with doom and prep but it seems this site has drifted to the geopolitical. Looking at developments in the Mid East it is understandable. We are closer than ever to WWIII not since the USSR was decaying in the 80’s has this been so tight. I was in Germany at that time and you could feel the tensions.
The issue now is not only the dangers of war and its escalations we also have the possibility of the end of globalism from oil supply destruction. That will destroy the food chain and lead to billions dying. If you think that too harsh think again.
apneaman on Thu, 8th Oct 2015 10:12 am
Zoid, of course you do. BTW what is your opinion exactly? You make a lot of comments, but never really say anything; never make an argument. All I know is that you are some kind of corny who does not like what you’re hearing. A contrarian.
Zoid is Void.
Break down your last comment. I nauseate you and so does Kunstler. We both have an agenda, are liars, snide and deprecating. And the so is the peak oil community. Big fucking deal. Just a wordy mean nothing ad hominem void of any actual explanation – like all your comments. You is not cogent boy. I’m all for verbal sparing and locker room put downs, but without a cogent argument – you’re just whining and bitching for the sake of whining and bitching. You would make a fine wife.
zoidberg on Thu, 8th Oct 2015 10:17 am
I don’t think it too harsh to believe billions might die. I think it harsh to hope and cheerlead for it.
apneaman on Thu, 8th Oct 2015 10:17 am
Davy says
“If given free rein like the U.S. dominated mainstream media message it becomes downright dangerous.”
Listen to yourself!! You sound exactly like a typical paranoid control freak Neocon. Trying to start your own Creel commision on peakoil.com Davy?
People like you are dangerous Davy.
zoidberg on Thu, 8th Oct 2015 10:27 am
I hope your not married apnea if your wife is upset it’s not for nothing.
My agenda is drop ideas around the internet I think need to be introduced.
apneaman on Thu, 8th Oct 2015 10:32 am
What ideas are those zoid? I have yet to hear anything out of you other than you don’t like doomers. That’s not an idea – it’s your anxiety.
Davy on Thu, 8th Oct 2015 10:53 am
Ape, man just because I am anti-Canadian doesn’t mean I don’t like you. smooches
zoidberg on Thu, 8th Oct 2015 11:08 am
Peak oil is an artificial problem, like climate change, designed to compel people to power down and die off peacefully. We exceeded our bounds when we started the industrial revolution. Who sets the bounds and who needs us to be ignorant and helpless slaves isn’t important here. What’s important is that we Cant be scared and herded away from unlocking our potential. And peak oil and climate change stories are just that. I want people to wake up.
zoidberg on Thu, 8th Oct 2015 11:09 am
Peak oil is artificial because we have better energy sources waiting for us to unlock. I’m not saying oil is magically abundant.
Davy on Thu, 8th Oct 2015 11:23 am
Void quit being an ugly American please. We got enough problems with appearance without idiots spouting off nonsense.
zoidberg on Thu, 8th Oct 2015 11:33 am
What world do you think you live on?
Davy on Thu, 8th Oct 2015 11:52 am
Void, you appear to be a young cocky guy that just grew some hair on his nuts and now you know it all. I could be wrong??? You likely have not had your ass kicked yet. I am sure you have spouted off wrong and got smacked but I am talking the real ass kickins that come from life. After having my ass smacked in the face and by life I can tell dumbass when I see it. That is the world I live in.
apneaman on Thu, 8th Oct 2015 12:18 pm
zoid, go tell the folks in South Carolina, yet another record breaker, about your hoax.
apneaman on Thu, 8th Oct 2015 12:47 pm
Davy, I’m anti Canadian too. The nation state is done and clinging only makes things worse. They mostly exist now to protect the interest of the wealthy elite. Like monarchy, their usefulness is over and they are now a burden on the majority. Last time we were in a similar position the world came up with fascism and communism and it could have just as easily happened in America. I don’t see any strong leader willing or able to offer the masses a new deal this time (probably get whacked), so we could end up with some nasty alternatives. I see it happening much the same way the Nazi’s came to power. Some new party or politician gets in and chips away one law at a time. Same as the neo liberals have done with economics the last 35 years except it will not take that long since most of the freedoms have already been legislated away. Loyalist consumers cannot imagine any other way of life. Now that I am done dreaming……it will probably be war. One fuck up and it could be the last one ever. Duck and cover baby.
Davy on Thu, 8th Oct 2015 12:53 pm
Honestly Ape Man I just soon avoid all people if I could. It doesn’t matter who they are. I am pro Kogi Indians of Columbia if I have to choose. Other than that I am an introvert who avoids people when possible.
zoidberg on Thu, 8th Oct 2015 12:59 pm
I’m not comfortable to post exact details of my life online, suffice to say I feel I’ve paid my dues.
Anyhow my ideas are sent out to survive or die on their own merits. Believe as you will.
zaphod42 on Thu, 8th Oct 2015 1:11 pm
A few observations: 1) Peak oil is not a problem… if it was, it could be solved. It is a condition – a fact – that needs to be acknowledged and plans made to deal with life that includes that fact.
2) We have been observing with increasing severity a growing lack of civility in our society… one may deal with a baseless assertion without any snarling sarcasm. On the same note, it is not mandatory to confront every aphoristic statement made. Better to ignore with a smile.
3) I enjoy lurking here. Probably more likely to make aforesaid aphoristic statement or simply from time to time ask a question. And I haven’t been spending much time here. Used to spend much more time online at TOD – and wish I had as much time on my hands as I did back then. Maybe someday I can actually retire.
Carpe diem.
GregT on Thu, 8th Oct 2015 1:36 pm
The Kogi Of Columbia Are Being Exterminated By The US
http://www.rense.com/general67/kogi.htm
apneaman on Thu, 8th Oct 2015 1:55 pm
zoid, no personal details, I get that, but as I said before, What are your ideas? We know what you don’t like and disagree with, but just claiming hoaxes and conspiracies doesn’t really convey anything dude. Logical arguments and evidence need to be there as well otherwise it’s all just emotion. Like you’re toeing the party line because you feel safe in the tribal comfort zone. I bet that every doomer, regardless of level, at one time bought into many of the societal narratives and went through a process (often uncomfortable) to get where they are today. The rabbit hole is deep and there have been many times I wished I never even looked into it. Oh yeah, I was once a hopey techno utopian and believed in progress among a few other myths, but an honest and lengthy look at the evidence burst those bubbles. Apes need their feel good stories and the truth has fuck all to do with it. The primitive limbic system drives the bus. Belief trumps reality until it punches you in the face.