Mohammed bin Salman’s Defining Moment

It is impossible to analyse Mohammed bin Salman as a climate leader without dedicating special attention to the moment that defined him as such. The following section will be focused on MBS’s defining moment – a turning point, an event that has shaped him into the way he is today in his climate pursuits.

Mohammed bin Salman Al Saud MBS
Mohammed bin Salman Al Saud

The defining moment used in the analysis is the oil price crisis that took place between 2014 and 2016. The impact of the 2014-2016 oil price crisis on the entire global community cannot be underestimated. By oil price crisis, we refer to the fact that “prices (on a monthly average basis) fell from over US$100 per barrel in July 2014 to less than half that by January 2015.”

Unlike previous price crises that occurred in 1997–1998 and 2008–2009 that were caused largely by serious economic downturns. The 2014-2016 oil price crash was more similar to the supply-driven crisis in the 1980s. The main drivers of the crisis include the increased production of shale oil by the United States and the decreased demand from markets. The sudden increased production capacity of shale oil in the US, supply reductions in the Middle East, and OPEC’s 2014 decision to stop price controls contributed to the crisis. Later on, disappointingly slow growth undermined further demand expectations. On a global scale, the collapse in oil prices caused fiscal and structural policy reforms. Declined oil revenues meant declined investment and output. For Saudi Arabia specifically, this demonstrated “the need for both vertical diversification in oil, gas, and petrochemical sectors, as well as horizontal diversification beyond these sectors, with an emphasis on technological upgrades and competitiveness.” Therefore, Saudi policymaking should be aimed at supporting investment in human capital, encouraging entrepreneurship, and increasing employment in a diversified private sector.

It is essential to understand that Saudi Arabia has a unique position and consequent influence in the Organization of the Petroleum Exporting Countries (OPEC) due to its unique swing supplier position. This means that Saudi Arabia can, in a timely manner, increase its oil production depending on the market conditions.  Saudi Arabia is the only oil producer that can do so in case of a supply shortage. “On pretty short notice, it can add a couple of million barrels a day — about 2 per cent — to global oil supplies.”

Therefore, when the 2014 -2016 crisis started, everyone expected Saudi Arabia to take action to push prices up – more precisely, cut production. However, it did not resort to such measures. By not doing so, Saudi Arabia “abandoned its role as the oil market’s swing supplier, handing control over the oil price back to the market and letting the price of crude fall freely.” Saudi Arabia could afford this hit to their oil revenues due to significant amounts of foreign reserves at their disposal. However, oil revenues constitute 50% of the Saudi GDP, which accounts for 70% of the total export revenue, which implies that the economy of Saudi Arabia suffered from this crisis. With oil exports accounting for such a high percentage of budget revenues and GDP, the Saudi economy was one of the most affected in the world by this crisis. While Saudi Arabia, owing to large foreign reserves, had an advantage compared to many other states, a prolonged oil price crisis would mean austerity measures that could negatively affect domestic support for the ruling family.

The decision not to intervene on the OPEC level and cut production to bring prices up artificially brought short-term economic damage but also a geopolitical benefit for Saudi Arabia since the crisis hurt its political rival Iran and an ally of Syria – Russia. Mohammed bin Salman, serving as a defence minister at the time of the crisis, witnessed the impacts of this crisis on his country. The essence of this defining moment for Mohammed bin Salman is the realisation that oil depletion poses a severe risk. Using oil revenues is not a sustainable source of development for the country, and a diversified economy is needed for the al-Saud family to stay in control domestically and in the Middle East.Having understood the stake of Mohammed bin Salman and what was the moment that defined him in his climate pursuits, the next section will provide an explanation of the most prominent policies undertaken by MBS. Following the witnessed crisis, MBS, with the services of McKinsey as a basis for the plan, immediately laid out a transformation plan. As the most comprehensive reform policy in Saudi Arabia, Vision 2030 is a detailed development plan with a multitude of projects and policies encompassing all spheres of life. It has a goal “to transform the country into a sustainable, diverse, and globally influential nation.”

IExRAIA Summer Research Program:

This article is an excerpt from a report on Mohammed bin Salman produced as part of a research program RAIA on climate leaders. For a full picture of MBS’s climate leadership read the full report. This project was fully financed by IE University’s School of Politics, Economics and Global Affairs.

Authors: Sonia Platonova & Alisa Lazurenko

Editor: Roxane de Bergevin

Project Lead: Joshua Dario Hasenstab


The shared Account of RAIA members and Alumni