Saudi Arabia Reveals How It Will End Its Oil 'Addiction' by 2020

An era of cheap oil has highlighted Saudi Arabia's unsustainable dependence on crude, with dwindling revenues prompting an urgent economic reform initiative in Riyadh.

On Monday, the prince in charge of the kingdom's economy unveiled details of the plan, which will raise capital for public investment through the partial privatization of the state oil company, Saudi Aramco.

Deputy Crown Prince Mohammed bin Salman, son of King Salman, told state television channel al Arabiya that shares worth up to five percent of Saudi Aramco would be sold to investors after the firm is converted into a holding company. The company would be valued at more than $2 trillion based on that sale, he said, making it the most valuable public company in the world. He noted that a sale of just 1 percent would amount to the largest initial public offering ever.

"We will not allow our country ever to be at the mercy of commodity price volatility or external markets," he declared.

Saudi Aramco says it has 260 billion barrels of proven crude reserves, more than 10 times as much as Exxon Mobil, which is currently the largest publicly traded oil company. Even as oil prices plummeted by more than 50 percent over the past two years, Riyadh has continued pumping from its reserves, which still account for one in 10 barrels produced every day. Last year, the government ran a record budget deficit of $98 billion.

Prince Salman has been the subject of several profiles in the financial press in the past year, most recently in Bloomberg Businessweek. Charged with overseeing the country's economy and defense at just 31 years of age, the prince is one of the most powerful people in the Gulf. He previewed his overhaul last week in Businessweek, indicating plans to shift Saudi income away from oil revenues and toward investment income earned by a massive sovereign wealth fund.

"The kingdom can live in 2020 without any dependence on oil," claimed the prince. "The Saudi addiction to oil has disturbed development of many sectors in past years."

On Monday, Saudi television broadcast King Salman's announcement that the plan, dubbed "Saudi Vision 2030" had the royal cabinet's backing. The plan aims to more than triple non-oil revenue to $160 billion by 2020 and $267 billion by 2030.

While the potential listing of Saudi Aramco has some investors salivating at the prospect, the details of its IPO — including how much access buyers would have to its overall financial details — are still unclear. It has also not yet been determined if investors would be buying into revenues coming from the reserves themselves or another part of the company's operations. While Prince Salman has highlighted the requisite transparency that comes with public listings, Saudi Aramco is considered one of the most secretive companies in the world.

While giving his son free reign to oversee economic reforms, King Salman has cracked down on internal dissent since ascending to the throne in January 2015. He has stepped up executions and rolled back some of the liberalizing measures of his predecessor and brother, King Abdullah.

On Monday, Prince Salman indicated that his plan seeks to increase the role of women in the Saudi workforce, though he noted that "we believe women have rights in Islam that they've yet to obtain," without elaborating. Women are currently banned from driving in the kingdom.

Just two months after his coronation, Salman authorized a devastating intervention overseen by the prince in neighboring Yemen, where Houthi rebels had driven the country's internationally recognized government into exile. The Saudi-led coalition in Yemen has been accused of a wide range of human rights violations committed in the past year, and the UN says the coalition's jets are responsible for the majority for more than 3,200 civilian deaths.

Since 2010, Saudi Arabia has purchased more than $100 billion in American arms. Washington provides an array of support measures for the coalition, including aerial refueling and intelligence sharing.

Follow Samuel Oakford on Twitter: @samueloakford