The new Saudi King, Salman bin Abdulaziz Al Saud, and his son, Deputy Crown Prince Mohammed bin Salman have drawn up a plan to reform the Saudi economy and wean the country away from its reliance on oil as the main source of income. The details of the plan are covered in this Bloomberg article:
Economic diversification is not a new idea for the Saudis, political scientists, economists and even Saudi politicians have been talking about it for years. For an economic argument for diversification and neo-liberal reform, see:
The problem has always been that economic reform in Saudi Arabia could be politically destabilizing. Oil is not just the backbone of the Saudi economy, it is one of, if not the most important political pillars of the state. Oil money (referred to in the poli-sci literature as rents) provides approximately 95% of government revenue. This not only provides money for services etc… it provides the regime with a large degree of economic and therefore political independence from society. The al Saudi do not have to tax Saudi citizens. Instead they redistribute money back to society in the form of generous social benefits and patronage spending. While it may be an oversimplification to say no representation without taxation, the re-distributive nature of the Saudi economy reduces a great deal of pressure for democratization. Not only does the government in effect pay it citizens, oil wealth has been used to build a new middle class beholden to the regime for government handouts. The use of foreign workers also means that organized labor has little or no power.
The Saudi political system cannot be reduced to oil rents, but economic reforms are extremely risky. Even if everything works as planned and the result is economic growth, diversification could very well mean more independence for the middle class and labor. Although the al Saud deny it, reform may also lead to taxation. As the country becomes more economically liberal, there may also be calls for social and cultural liberalization, which would threaten one of the regime’s other pillars of political support, its relationship with the conservative religious establishment.
If King Salman actually follows through with his economic plan it will lead to new political dynamics within the regime, dynamics that the institutions of the Saudi state may have a hard time coping with.
For more, see: