- Saudi Arabia is pushing ahead with megaprojects such as The Line in Neom.
- The kingdom’s economy is still heavily dependent on oil revenues, but prices have been sliding.
- A big decline in oil revenue may make it harder to fund Saudi Arabia’s ambitious megaprojects.
Saudi Arabia is still heavily reliant on oil revenues — and the collapse in oil prices in recent days is not good news for its Vision 2030 megaprojects.
A key element is the futuristic Neom city on the Red Sea, with The Line forming its centerpiece.
The kingdom is funding these projects primarily from oil revenues. Global oil prices averaged $81 a barrel last year, per the US Energy Information Administration, but have collapsed amid the market turmoil triggered by President Donald Trump’s trade tariffs.
Brent crude, the international benchmark, traded as low as $62 a barrel on Monday, while US oil went as low as $59 a barrel. That’s the first time WTI oil has been below $60 since 2021.
Goldman Sachs has cut its forecasts for next year, pointing to the increased risk of recession and possible higher-than-expected output from OPEC+ nations. The bank’s analysts now expect $58 a barrel for Brent and $55 for US oil.
Lower oil prices mean less revenue for Saudi Arabia — the world's biggest oil exporter. Tim Callen, a visiting fellow at the Arab Gulf States Institute think tank in Washington, told Business Insider that means the kingdom must either "increase revenue from non-oil sources — or cut spending."
"My sense is that there will be some scaling back of plans with either some lower priority projects canceled and others implemented over a longer period," he said.
Callen also expected the Saudi government, the Public Investment Fund — the Saudi sovereign wealth fund — and oil company Saudi Aramco to raise funds by borrowing or tapping capital markets this year.
Declining revenues
Despite Saudi Arabia's efforts to diversify into tourism, renewable energy, and technology, oil remains the main backbone of its economy.
In November, the Saudi finance ministry projected revenues equivalent to roughly $316 billion for the 2025 financial year, while spending was estimated at about $342 billion, meaning a deficit of about $26 billion.
Saudi Aramco, Saudi Arabia's state-owned oil company, said last month it expected $85.4 billion in dividends this year, down from from $124 billion in 2024 and $97.8 billion the previous year. The decline in oil prices since then is likely to reduce revenues even further.
"They're hitting a wall," Abdullah Alaoudh, a director at the Middle East Democracy Center, told BI.
In November reports suggested that The Line, a key part of Neom, was being scaled back to focus on completing a 1.5-mile stretch of development, including a stadium expected to host soccer's 2034 FIFA World Cup. Saudi Arabia is also due to host the 2029 Asian Winter Games.
The CEO of Neom also resigned in November after six years in the role, with no explanation given for this departure.
The same month Mohammed Al Aljaadan, the Saudi finance minister, described Neom as a "very long-term program," and downplayed the idea of short-term returns.
He said in a press release at the time that the kingdom had a strong financial position and that its development projects and plans had not been significantly affected.
The finance ministry didn't respond to a request for comment.
Tough choices
The minister's comments haven't stopped some questioning whether the kingdom's grand vision can be sustained, or will need to be scaled back.
"There is scope to raise more non-oil revenue through taxation of property, income taxes, or even raising the VAT further," Callen said.
"The more likely response is to slow the implementation of capital spending projects and to increase borrowing in the hope that oil revenues will rebound in the coming years."
The International Monetary Fund said in April 2024 that Saudi Arabia needed oil to be about $96 a barrel to fund its spending commitments.
Andrew Leber, a nonresident scholar in the Carnegie Middle East Program, told BI: "Lower global oil prices will make it more likely that Saudi state entities will either significantly downsize or drop several of their key megaprojects."
Predicting the trajectory of oil prices had become even more difficult following the "extreme volatility" the Trump administration had sparked in the global economy, Leber said.
Callen expected Saudi Arabia to prioritize projects "needed for the successful hosting of global and regional events, and those that directly affect the well-being of Saudi citizens."
"The lower the oil price, or more precisely, the lower is oil revenue — because production also matters — the more pressure there will be to scale back the ambitions of the megaprojects."
Given that Neom is the brainchild of Saudi Arabia's crown prince and de facto ruler, Mohammed bin Salman, Saudi officials are likely to be looking for ways to keep forging ahead.