Saudi Arabia is determined not to spoil this oil boom |

Saudi Arabia continues to benefit from its strong oil sector, with state-owned Aramco announcing incredible profits for the second quarter of 2022. But in addition to maintaining its oil operations, the country is focused on using oil revenues to inject funds into other industries. as it strives to diversify its economy. As the world transitions to clean energy, smart diversification will allow Saudi Arabia to grow its economy enough to stay on top.

Aramco reported record profit of $48.8 billion for the second quarter of 2022, marking a 90% year-over-year increase. It’s the largest quarterly adjusted profit of any listed company, according to Bloomberg. The earnings growth was largely driven by higher oil prices as well as a shift in global demand away from Russia due to Russian energy sanctions.

Chairman and CEO of Aramco Amin Nasser declared“While global market volatility and economic uncertainty persist, events in the first half of this year reinforce our view that continued investment in our industry is essential both to ensure that markets remain well supplied and to facilitate an orderly energy transition.” He added: “In fact, we expect oil demand to continue to grow for the remainder of the decade, despite downward economic pressures on near-term global forecasts.”

Aramco is not the only major oil company to post strong profits this year, with Exxon, Chevron and BP all reporting massive profits. This has led some governments to introduce a windfall tax on oil and gas companies to support a public facing rising consumer costs. In the UK, the government has introduced a $5 billion tax on the oil companies that have benefited from the rise in crude prices.

But Saudi Arabia is now worried about consumer prices and is pumping its oil funds into other industries to help boost its economy. The ripple effect that its rising oil revenues are having on other sectors has become increasingly clear with the boom in its real estate industry. Just recently, 300 new properties in the Riyadh complex of Almajdiah Residence were sold to cash buyers in one month, priced at $266,400 apiece. Greater freedoms for individual buyers, both men and women, have helped sustain the property boom.

Saudi Arabia’s de facto ruler Mohammed bin Salman has relaxed strict rules on entertainment since he came to power in 2015, allowing men and women to mix more in society and allowing women to drive and rent or buy their own home. More women are now working and 30% of investors in Almajdiah properties were women.

The country GDP increased by 11.8% in the second quarter of 2022, the non-oil economy grew by 5.4%, to surpass pre-pandemic levels. Bin Salman stressed the importance of economic diversification, as much of the world begins to shift away from fossil fuels towards renewable alternatives. Saudi Arabia is rapidly expanding its construction sector, rushing to build malls and parks across Riyadh, as well as planning a new city and one Red Sea tourism development. Saudi manufacturing has also grown in recent years, with a growing electric vehicle (EV) market. Related: Gas price in Europe now equals $410 a barrel of oil

While much of the country’s industrial development still relies heavily on oil revenues, which are expected to fall as oil prices eventually decline, increased investment in other sectors will help Saudi Arabia develop an economy stronger and more diverse. Investments in manufacturing, construction and tourism will allow greater benefits to be realized in other sectors as the green transition proceeds.

In June, Saudi Arabia announced a budget surplus this year of $15 billion, with $80 billion expected by the end of 2022. In addition to continuing its plans for rapid economic diversification and expansion, ben Salman decided to save much of the excess funds to avoid the commodity boom and bust cycle and focus on shifting the state’s economy from being purely dependent on oil and gas . This is a different approach to previous economic policies during rising oil prices, with finance previously used to raise public sector wages, invest in the military and develop major infrastructure. But with new industrial cities and massive skyscrapers already built, the country’s current growth plans are more focused on raising revenues from a range of industries in the future.

Finance Minister Mohammed al-Jadaan explained the previous approach to government spending: “The big mistake we made over the past two decades is that we coupled the two: when you have more oil revenue, you spend more; when you don’t, you are in shock, and it is very painful for the economy.

Saudi Arabia is acting wisely by profiting substantially from its oil revenues by increasing production, as well as injecting funds into economic diversification while saving money for falling oil prices. As the green transition proceeds, Saudi Arabia will likely achieve the overall economic development it needs to build strong industries and ensure long-term prosperity in a post-oil world.

By Felicity Bradstock for

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