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From Oil To Arms: Saudis Move Away From Crude

By Irina Slav - May 18, 2017, 11:07 AM CDT

The sovereign wealth fund of Saudi Arabia has set up a defense business as part of its efforts to reduce the Kingdom's dependence on crude oil for budget revenues laid out in the Vision 2030 plan. The plan was devised by Deputy Crown Prince Mohammed in a bid to diversify the Saudi economy in the wake of the 2014 oil price crash, and also involves nuclear, solar, and wind energy projects.

The company, Saudi Arabian Military Industries (SAMI), will produce land and air systems, weapons, and missiles, with a view to Saudi Arabia producing half the weapons and systems it needs locally by 2030. This raises the question, how much military equipment the Kingdom will need in the coming years, as media have reported U.S. President Trump is about to announce an arms export deal with Riyadh worth US$350 billion.

In a statement issued to announce the setting up of SAMI, Prince Mohammed said "While the Kingdom is one of the world's top five spenders on security and defense overall, only around two percent of our military procurement is domestic."

The new company, 100-percent state-owned, is expected to contribute some US$3.7 billion to the country's GDP by 2030, spending over US$1.6 billion (6 billion riyals) on research and development. Related: OPEC Expects U.S. Driving Season To Save Oil Prices

The Saudi sovereign wealth fund had assets of about US$190 billion at the beginning of this year. In January, one banking industry insider told the Financial Times that these could rise to US$500 billion before the initial public offering of Aramco, which will bring in another US$100 billion, according to estimates.

Renewable energy is a big part of Prince Mohammed's Vision 2030 program as well. Plans are to produce a tenth of the energy that the Kingdom needs from renewable sources by 2023. Until that period, new generating capacity of 9.5 GW from 30 solar and wind power projects needs to be built. Energy Minister Khalid al-Falih estimated the investments necessary for these projects at between US$30 and US$50 billion.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More

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Comments

  • Dan - 18th May 2017 at 4:25pm:
    Sounds like I'm reading a giant billboard from Saudi Arabia that says ," sorry, we really didn't have as much oil left as we said we did.
  • Bonaventure Stephen Gomes - 19th May 2017 at 12:41am:
    Saudi Arabia is a natural resource economy. As economists suggest, countries with natural resources seldom develop their human resources, and this is true of Saudi Arabia. South Korea is a human resource economy. The entire economy of Saudi Arabia is dependent upon expatriates-led companies, and expatriates' expertise. In India, all our infrastructure is build by Indian sweat and hands unlike Saudi Arabia. In all scenarios, the planned military production company, while funded by the Saudis, will depend entirely, and largely, on the mercy and expertise of US- and European-based defense industries.
  • Naomi - 19th May 2017 at 12:24pm:
    Saudi Arabia should invest in wealth creation that employs their idle population. They need chemical manufacturing, electronics, pharmaceuticals, automobiles, consumer goods, construction, clothing, fishing, mining, etc. Every person should create more wealth than he or she consumes.