Seeking a $10 billion loan, the Middle Eastern oil tycoon is having a tough time.

01 Even the Wealthy Run Out of Resources

The falling oil prices have made life tough for the oil-rich countries in the Middle East.

Recently, Saudi Arabia was reported to be seeking a huge loan of about $10 billion from several major Wall Street banks. This is also the largest public loan Saudi Arabia has taken in recent years. How could the Middle Eastern country, known for its wealth, suddenly rely on loans? Is it possible that even the oil-rich kingdom is running out of resources?

Although Saudi Arabia is far from the poverty line, its fiscal situation has indeed faced some problems in recent years. In the first quarter of this year, Saudi Arabia recorded a fiscal deficit of over $3.3 billion, continuing the downward trend of a deficit of about $30 billion throughout 2024. Official forecasts suggest that the country will continue to face fiscal deficits in the coming years.

As a country built on oil fields, the root cause of Saudi Arabia's current financial difficulties is clearly related to the fluctuations in international oil prices. Affected by the global economic downturn, weakening demand, and increased oil production in the Americas, the price of Brent crude oil has dropped from over $80 per barrel to around $65 per barrel in the past year. This is far below the $90 per barrel safety line required for Saudi Arabia to maintain fiscal balance.

To stabilize oil prices, the Organization of the Petroleum Exporting Countries and its allies (OPEC+), led by Saudi Arabia, have frequently resorted to production cuts in recent years to save themselves. They have attempted to maintain prices by controlling oil supply. However, the market does not seem to buy into these measures. The International Energy Agency has previously stated that even if OPEC+ does not increase production at all, the global oil market will face an oversupply by 2025. Therefore, after several years of daily production cuts of 2.2 million barrels with no obvious results, the OPEC+ member countries reached a consensus. Instead of leaving the oil unsold, they decided to increase production to maintain their market share. Starting from the middle of this year, they gradually resumed increasing production.

With the end of the production cut standoff, the major oil-producing countries in the Middle East have returned to their prosperous days of making easy money from oil. However, for Saudi Arabia, which is currently in a critical stage of national transformation and in urgent need of funds, this is not necessarily good news.

As one of the most active new players in the international investment market, Saudi Arabia's name has frequently appeared in various emerging industries around the world in recent years. From artificial intelligence and chip manufacturing to new energy vehicles and the sports and e-sports industries, Saudi Arabia has invested in almost all growth projects where it can pour in money.

From a country relying solely on oil to an active participant in emerging industries, Saudi Arabia has adopted an aggressive investment strategy in recent years, both at home and abroad. The aim is to reduce the country's dependence on oil and achieve economic diversification. Behind all these costly and radical reforms, there is a key figure: Mohammed bin Salman, the 40-year-old Crown Prince of Saudi Arabia.

In January 2015, Salman, over 80 years old, succeeded the late Abdullah and became the new king of Saudi Arabia. Two years after taking office, Salman changed the traditional inheritance pattern of the Saudi royal family from "brother-to-brother succession" and officially appointed Prince Mohammed bin Salman, who already held significant military, administrative, and financial power, as the new Crown Prince.

Crown Prince Mohammed bin Salman of Saudi Arabia (left) and King Salman of Saudi Arabia (right)

As an executor of his father's will and a firm reformer, Salman proposed the "Saudi Vision 2030" plan in 2016. The plan aims to accelerate the growth of the non-oil economy through capital market reforms, the construction of large-scale projects, and debt financing, helping Saudi Arabia become the heart of the Islamic world, a global investment powerhouse, and a hub connecting Asia, Europe, and Africa. All these initiatives hinge on the crucial issue of funding.

To this end, Salman reorganized the Public Investment Fund (PIF), the country's fiscal reserve, into a state-owned capital group to promote Saudi Arabia's economic modernization. By increasing the inflow of national fiscal surpluses, foreign exchange reserves, and oil export surpluses, the scale of the PIF's funds has grown from $150 billion in 2015 to nearly $1 trillion currently in less than 10 years. By serving as the chairman of the board, Salman has gained significant decision-making power over these funds and initiated Saudi Arabia's radical reforms in recent years, aiming to catch up with the United Kingdom and the United States.

However, Saudi Arabia has paid a high price in its transformation from a wealthy oil kingdom to an aggressive global investor.

In 2016, Masayoshi Son raised funds at a rate of " $1 billion per minute" and convinced the PIF to invest $45 billion in a 45 - minute speech. Saudi Arabia thus became the largest investor behind SoftBank's Vision Fund. However, in 2022, the Vision Fund suffered a loss of $32 billion, directly leading to a comprehensive loss of $15.6 billion for the PIF that year.

Just one year later, Credit Suisse, a century - old international bank, faced a financial crisis and was forced to sell itself to UBS Group at a discounted price. As the largest shareholder of Credit Suisse, Saudi Arabia lost more than $1 billion in this acquisition.

These are just the tip of the iceberg of Saudi Arabia's investment failures in the global market in recent years.

Contrary to the pursuit of stable and diversified asset allocation by sovereign wealth funds, the role of the PIF as a national transformation machine means that it is more exposed to high - risk assets and emerging industries. Lacking a mature risk - hedging mechanism, once oil prices decline or the macro - economy fluctuates, the PIF's capital chain will be under pressure at any time.

Obviously, the current decline in oil prices is an established fact, and Saudi capital, which has always been known for its generous spending, has finally felt the pain of a shortage of funds.

To relieve fiscal pressure, Saudi Arabia announced last year that it planned to significantly cut overseas investments by about one - third, from 30% to 18% - 20%. This move marks the end of the PIF's large - scale global investments over the past decade. Instead, it will allocate more resources to domestic economic construction. At the same time, Saudi Arabia has also launched a large - scale debt issuance program. In 2024, the country and government entities, including Saudi Aramco, issued about $50 billion in debt, making it the largest borrower in the emerging markets. It is expected that large - scale debt issuance will continue this year.

In the current context of continuously falling international oil prices, the $1 billion loan plan is just a microcosm of Saudi Arabia's current fiscal situation. As the Vision 2030 plan continues to be implemented, Saudi Arabia's financial situation will remain under pressure. Compared with its external aggressive investments, Saudi Arabia's bigger financial problem lies in its numerous large - scale infrastructure projects, among which the most controversial is undoubtedly the NEOM Future City project.

02 The Ideal and Reality of Building a City in the Desert

As an important part of Saudi Arabia's reform and the "Vision 2030" plan, the Saudi NEOM Future City project has attracted wide attention and discussion globally since its announcement.

In October 2017, Mohammed bin Salman announced the plan to build a science - fiction - level city in Tabuk Province in northwestern Saudi Arabia. The project is planned to cover an area of 26,500 square kilometers and was originally scheduled to be initially completed by 2040. By 2045, it is expected to accommodate 9 million residents. The goal of the entire project is to build an artificial intelligence city completely relying on renewable energy. The initial planned investment is $500 billion, and it is expected that the project will contribute $100 billion to Saudi Arabia's GDP by 2030.

Specifically, The Line, the core of the project, is a 170 - kilometer - long and 200 - meter - wide three - dimensional city. It consists of two parallel mirror - like buildings, 490 meters high on both sides, spanning the coast, desert, and mountains. High - speed trains will run beneath the "mirror line".

Inside the city, there are not only schools, sports fields, shopping malls, and entertainment venues but also crop cultivation as part of the city's construction. Through special design, food crops can be cultivated vertically in the city, and the harvesting and packaging processes can be automated through intelligent equipment.

Moreover, as a future clean city for humanity, all the energy needs of residents in the city will be provided by clean energy. There is no need to drive in the city. People only need to walk for a maximum of 5 minutes to handle daily affairs or reach public transportation stations. They can reach any part of the city within 20 minutes by taking the ultra - high - speed public transportation system.

In addition, with the help of the advanced AI, robotics, and drone systems in the city, the daily logistics and food delivery services for residents can be managed without human intervention.

As supporting facilities for The Line, the Saudi NEOM Future City project also includes several other sections, such as the Magna coastal resort area, the luxury resort on Sindala Island, the Trojena snow city, and the OXAGON clean industrial zone. Dozens of luxury hotels, desert ski resorts, clean energy ports, and other facilities will be built in Saudi Arabia.

According to Salman's vision, the NEOM Future City will be the most livable city for all of humanity, and he intends to "build his own pyramid" here. However, the ideal is always far from the reality.

An initial impact assessment of the project in 2021 pointed out that such a large - scale project would take at least 50 years to complete. The construction structure might change the groundwater flow in the wadis in the desert. The mirror - like buildings would affect the activities of millions of birds and other animals in the area. The issue of land acquisition from the affected tribes was difficult to resolve...

However, in the eyes of the royal family, all these problems boil down to money. To speed up the project, Salman increased the original budget of $500 billion to over $1 trillion. Amidst the cheers, the construction of the NEOM Future City began. Before long, a grand trench was dug in the yellow desert, and the outline of the city was faintly visible.

However, when the construction teams actually entered the site, people realized that the city was not only designed in a science - fiction way but also extremely difficult to construct.

For example, IBM spent five years on the AI city management system required by the client but still couldn't produce a test version. ThyssenKrupp initially promised a maglev freight pipeline. Although the laboratory data was excellent, it malfunctioned when installed in the desert. The iconic mirror - like exterior wall became a "new weapon". During the day, it reflected sunlight and turned the construction site into an oven at 60 degrees Celsius. At night, it became a suicide site for birds, and environmental protection organizations protested every day...

In addition to the difficult - to - solve technical problems, Saudi Arabia also has to face the issue of tied sales by powerful countries.

The US Congress took the opportunity to demand that Saudi Arabia purchase enough Boeing airliners and Raytheon missiles before providing loans. European construction companies colluded to raise the price of steel structures by 30%. Even India took advantage of the situation and required Saudi Arabia to purchase 100,