Detailed Report: SWOT Analysis of the Saudi Arabian Oil Industry

This report provides a SWOT analysis of the Saudi Arabian oil industry, examining its strengths (large oil reserves, developed infrastructure), weaknesses (subsidy dependence, high capital expenditure), opportunities (unexplored areas, expansion of refining capacity), and threats (Middle East instability, environmental concerns). The analysis highlights the industry's reliance on oil exports, its vulnerability to global oil price fluctuations, and the importance of the Saudi Vision 2030 plan for economic diversification. The report discusses the impact of government reforms, the potential for gas production, and the need for a diversified economy to mitigate risks. The conclusion emphasizes the importance of wise resource management and the potential for future growth, while also acknowledging the need to diversify the economy away from its heavy reliance on oil, as outlined in the 2030 plan.

Introduction:
Saudi Arabia is the second largest oil producer in the world after United States of America (USA) and
stand at world number one in terms oil exporting countries. But in recent years due to declining oil
prices and slowness in world oil demand has put pressure on Saudi Arabia’s economy. Saudi Arabia’s
economy is heavily depended upon export of oil product. Oil is the main source of revenue for Saudi
Arabian economy (Rapier, 2018). Taking the entire thing into consideration it will be appropriate to
conduct a SWOT analysis.
SWOT Analysis
SWOT analysis for the Saudi Arabian oil industry.
Strengths:
 Saudi Arabia has very large and abundant proven oil reserves base. Besides, it is world
second largest oil producer.
 Saudi Arabia has very strong and developed oil and gas infrastructure, which is beneficial in
extracting and producing oil in most sophisticated manner.
 Saudi Arabia has very good and developed service sector, which help it in marketing and
distribution of oil products. Due to well established service sector customer get good and
quality service by the oil industry and help in sustain it oil demand and supply ("Saudi Arabia
/ Economic Studies - Coface", 2019).
 It has very stable and sustainable operating structure and environment, which help it in
producing oil in consistence manner for it export as well as domestic consumption
(Khandelwal, 2019).
 Biggest economic superpower in Middle East countries, which help it in gaining world’s
attraction.
Weaknesses:
 Saudi Arabia’s oil industry is heavily dependent upon subsidy, which hampers it growth in
country and promote unnecessary usage of oil product. Presence of subsidy for it consumer
put lot of pressure to exchequer and could destabilize economy of country.
 Oil and gas industry is very high Capital Expenditure industry, which requires a lot of initial
capital expenditure, which is why, smaller player not able to stand before the larger player,
which reduces the scope for competition in the industry. So, in a sense it is very restrictive
kind of industry.
 Oil and Gas sector is very challenging and sensitive sector. It is also highly volatile sector. Any
geo-political news can put its demand at peak level. Also, its supply and demand is very
highly fluctuable in nature. Engineers and other skilled employees face lot of challenges
while working to extract oil reserves (Khandelwal, 2019).

Opportunities:
 Saudi Arabia is already seconds biggest oil producer in the world and it has many unexplored
area to explored and gain further momentum in coming years. Both type of opportunity
exist in coming years, like onshore, offshore as well as conventional areas ("Saudi Arabia /
Economic Studies - Coface", 2019).
 In recent years, Saudi Aramco has also been moving to establish itself as a player in the
unconventional sector. The company is continuing exploration efforts in northern Arabia,
South Ghawar and the Jafurah basin. It has completed a number of wells in each of the three
areas and has achieved production at a pilot project in northern Arabia. It also reports
drilling cost reduction for all three, due to a mix of fit-for-purpose technologies and
improvements in well design and execution. So, Saudi Arabia has continued expansion of
refining and petrochemicals capacity. Saudi Arabia’s domestic oil demand is on rise plus it is
already world’s largest oil exporting country, which puts it on alert mode to keep searching
for more financially viable drilling avenues. Above all give great opportunity for Saudi Arabia
to look for more oil producing wells.
 Recent reforms in energy pricing in Saudi Arabia has given new boost to this sector.
Otherwise, due to heavy subsidy for domestic consumer has put this sector in very
vulnerable situation. Earlier, subsidy in energy pricing has helped much to this sector. From
an overall societal perspective, reforms in oil prices has helped Saudi Arabia, increase in
government saving due to cut in unnecessary subsidy, it will help improve quality of air in
the region and improve overall environment of the region and finally, cutting excess
electricity and oil usages means more revenue generation for the Saudi Arab government,
which will further boost economic condition for Saudi (WALD, 2018).
Threats:
 Whole Middle East is highly sensitive zone, dues to its highly concentrated oil reserves in the
region and centrally located geography. Middle East gulf countries always remain in news
due to various negative aspects like growing terrorism and ISIS (Islamic state terrorists)
activities, Iran and US, Saudi Arabia tension and many other reasons. So this whole reason is
always remain very tense and remain in news most of the time, which effects economy of
the reason in a big way.
 Fossil fuels are non-sustainable oil reserves and it is also one of the most polluting elements
of the environment, which put lot of pressure on it usages. In longer period of time due to
growing demand of reducing carbon emission, can put even more pressure on its production
and gradually switching over to usages of more environment friendly types of energy like
wind energy and solar energy, which is also very cheap form of energy, and, it is renewable
also. These aspects can put pressure on Saudi Arabia’s oil economy and can impact its
revenue generation in longer time (WALD, 2018).
As per the 2030 plan of Saudi Arabia, it is envisages that, its economy needs to diversify from purely
oil based economy, to includes sectors like tourism, education, services, health and financial sector

as well. There vision lies in diversification or its economy should have diversifies outlook, Saudi
Arabia does not want to rely heavily in on one sector, so that in case of any future uncertainty, it
could not impact its economy in a big way. So main principal of 2030 plan of Saudi government is to
diversify its economy and make its economy healthier in term of not only revenue generation but
also in terms of sector diversification.
Keeping future scenario in mind Saudi Arabia designed this 2030 plan, so that, it economy and
people would not remain in uncertainty by heavily or entirely depending on oil based economy. Even
no, they have started to increase gas so that they can shift their energy demand to gas also as much
as they can.
Conclusion:
Saudi Arabia needs to use its vast available mining resources wisely to sustain its economic goal in
longer period of time. Though, current oil prices are on lower side but once global outlook of
economy would improve, there is every possibility that oil price would take northwards direction,
which will serve the purpose of country. Oil prices are mainly hit due to demand slowness and lack
of consensus in reducing oil production among OPEC countries and Unites states and Russia as well.
Certainly improved global outlook would improved the Oil based economy of Saudis Arabia, but it is
also important to note that Saudi’s economy is heavily dependent on oil sector that needs to
diversify as mentioned above as per 2030 plan.

References
Khandelwal, R. (2019). The World’s Top Oil-Producing Countries - Market Realist. Retrieved 4
September 2019, from https://marketrealist.com/2019/04/the-worlds-top-oil-producing-countries/
Programs | Saudi Vision 2030. (2019). Retrieved 5 September 2019, from
https://vision2030.gov.sa/en/programs
Rapier, R. (2018). Saudi Arabia Proves That Oil Is Power. Retrieved 5 September 2019, from
https://www.forbes.com/sites/rrapier/2018/10/24/saudi-arabia-proves-that-oil-is-power/#6b1a1ef542e8
Saudi Arabia / Economic Studies - Coface. (2019). Retrieved 4 September 2019, from
https://www.coface.com/Economic-Studies-and-Country-Risks/Saudi-Arabia
WALD, E. (2018). Saudi energy subsidy cuts an early success. Retrieved 4 September 2019, from
https://www.arabnews.com/node/1353116