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Saudi companies are seeking to diversify and protect their businesses as they brace themselves for a slowdown in the kingdom after geopolitical turmoil triggered a sharp drop in oil prices.
Saudi Arabia’s economy has long depended on energy export-fuelled government spending, leaving it exposed to boom-and-bust cycles driven by swings in crude prices.
Oil’s recent drop from more than $80 a barrel in January to around $60 — the lowest since 2021 and far below the kingdom’s break-even price — has forced private businesses to once again prepare for a downturn despite years of efforts to diversify under Crown Prince Mohammed bin Salman.
One Saudi tech entrepreneur said he learnt a hard lesson when he was forced to shut his first business after the government cut public-sector worker bonuses and benefits following an oil price collapse in 2016.
This time, one of his companies, which runs customer loyalty programmes for other businesses, has sought to cut the number of government clients to shield the impact and expanded into new sectors such as food and beverages, which he said would prove more resilient thanks to rising tourism.
“There will certainly be a drop in government spending, so we have diversified our revenue streams to mitigate that risk,” he said. He added that “government clients now represent less than 10 per cent for us”.
But the entrepreneur said his second company, which offers enterprise software services, still got the majority of revenue from government contracts and was likely to struggle.
“If oil prices drop further they will stop using us,” said the businessman, who asked not to be named to protect his relationship with the government.
Prince Mohammed in 2016 launched an ambitious plan, dubbed Vision 2030, to decrease the kingdom’s reliance on oil revenues by investing in everything from tourism to futuristic infrastructure projects. The government also aims to increase the private sector’s contribution to GDP from 40 per cent in 2016 to 65 per cent by 2030.
Officials say the economic reforms, including raising government non-oil revenue through taxes, have made the economy less vulnerable to oil price volatility. While they have helped non-oil exports reach an all-time high of $137bn in 2024, oil still accounted for 61.6 per cent of state revenue.
Despite diversification efforts, spending by the government and state-linked entities such as the Public Investment Fund is still the key driver of economic activity. The $940bn sovereign wealth fund is currently overseeing a vast array of projects that seek to unlock new sectors to create jobs and boost growth in the longer term.
After a decade of frenetic activity, government departments have been recently told to tighten their belts as Riyadh recalibrates spending priorities. Some of the kingdom’s so-called gigaprojects, including the flagship Neom scheme, are experiencing delays or being revised to be executed over a longer timeline.
Saudi Arabia began increasing its oil production last month, indicating a shift in strategy in which the kingdom now appears prepared to endure a period of lower oil prices for the sake of a larger market share.
“For Saudi businesses, the immediate concern will be a retrenchment and shift in government contract award cycles, a slow down or cancellation of awards, and shifts in bank lending or cost of capital,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy.
Austerity measures during the last oil slump, between 2014 and 2016, led to major delays in paying government contractors and left lasting damage to many businesses. Authorities say subsequent reforms now ensure contractors are paid on time.
One veteran foreign executive, who works for a company that operates a chain of franchise restaurants across the kingdom, said the impact of the slowdown had yet to be felt. But he said he was worried about potential disruption to global supply chains due to trade tensions following the tariffs imposed by US President Donald Trump.
“We are still seeing people spending money,” he said, adding that sales and traffic were slightly higher during the Eid al-Fitr holiday in April than a year earlier.
“But I’m keeping a very close eye on the supply chain side. We’re still importing beef products and those kinds of things,” he added. “The hospitality industry operates on a very thin margin in terms of profitability. So any fluctuation or change in the supply chain can impact our bottom line.”
