Saudi Arabia Struggles to Remake Oil Economy

This is what it takes to run a mega-dairy in the scorching desert here: 180,000 Holstein cows, precisely cooled cowsheds, water pumped from deep underground, feed from Argentina and a state-of-the-art refrigeration system. To transport chilled milk and other products all over the Arabian Peninsula, add 9,000 vehicles.

None other than the Saudi king’s favored son, Deputy Crown Prince Mohammed bin Salman, has held up the dairy, Almarai, as a model for a country trying to wean itself from oil dependence. But even companies like Almarai, with no apparent connection to petroleum, rely on the cheap energy provided by the kingdom, NewsNow reported.

That is coming to an end. Low oil prices and an increasingly costly war in Yemen have torn a yawning hole in the Saudi budget and created a crisis that has led to cuts in public spending, reductions in take-home pay and benefits for government workers and a host of new fees and fines. Huge subsidies for fuel, water and electricity that encourage overconsumption are being curtailed. For Almarai, one of the top brands in the Middle East, that will mean $133 million from the bottom line this year, company officials said.

Prince Mohammed’s plan for an economic overhaul has sent tremors through a nation whose citizens have long enjoyed a cosseted lifestyle underwritten by the state. “The government is moving very fast at reforming things in Saudi Arabia, while the people are finding themselves left behind,” said Lama Alsulaiman, a businesswoman and board member of the Jidda Chamber of Commerce and Industry. “Life as usual and business as usual can no longer continue.”

The vast subterranean seas of petroleum here have seeped into almost every part of the Saudi economy. Crude oil does more than deliver billions of dollars in profits to Saudi Aramco, the state oil company, and Sabic, the chemical giant; it also buttresses energy-intensive sectors like cement production and aluminum smelting.

Saudi Arabia burns barrel after barrel of crude oil for electricity, one of the few countries to do so in large quantities. Commercial air-conditioners cool shopping malls as temperatures outside soar past 100 degrees Fahrenheit in the summer, and children go sledding at Snow City, a frigid new recreation center in the capital. Much of the drinking water needed to keep this desert nation alive comes from energy-draining desalination. And the SUVs idling in Riyadh’s enormous traffic snarls drain gasoline.