Persistent low oil prices could force Saudi economy to change

The World
A Saudi woman shows Saudi riyal banknotes at a money exchange shop, in Riyadh, Saudi Arabia January 20, 2016.

A Saudi woman shows Saudi riyal banknotes at a money exchange shop, in Riyadh, Saudi Arabia January 20, 2016.

REUTERS/Faisal Al Nasser

Recently, Ben Hubbard of the New York Times attended a career fair in Riyadh, Saudi Arabia.

The fair might not have been particularly newsworthy if it were taking place in another country. But in Saudi Arabia, where a major part of the economy runs on oil revenue, it was.

"In previous generations, if you had a degree or if you had some qualifications, you would get out of college and you'd pretty much immediately snap up a government job," says Hubbard.

Not any more. First, there's been a major drop in oil prices. Over the past year and a half, the price of oil has dropped from $100 dollars per barrel to $30.

And then, there is a large population of young Saudis graduating and looking for jobs.

"The population of the Kingdom is much much larger than it's even been and it's a very youthful demographics," explains Hubbard, "There's no way that the government can employ all of these people."

Hubbard adds that the job fair is one of the early places where you can witness a realization from the younger generation that it's not going to be the same for them as it was for their parents.

But it's not as if the Saudi government hasn't been thinking about a plan B.

"There has been talk about diversifying away from oil for decades," says Hubbard, "[...] but they've never done that."

Part of it, he continues, is because of the very high oil prices over the past 10 years. It was just easier to continue the status quo.

The Saudi society has gone through previous oil crunches and survived. And even today, Hubbard says, Saudi Arabia is not in crisis.

The government has also proposed a number of plans to retool the economy, for example, privatizing large government companies, the airports and the ports.

The details of these plans are not clear yet, says Hubbard, and so it's hard to tell how the Saudis will react.

But he adds if the oil prices continue to fall, there could be some pushback from the society.

The one contant about the oil market, after all, is its volatility.