If Saudi Arabia wants to restructure its economy, it must liberalise its society

A state shunned by much of the world for the murder of Jamal Khashoggi and a merciless proxy war in Yemen cannot win them back through economic policy alone

The curious thing about the headline-grabbing sale of one of the world’s biggest oil companies, Saudi Aramco, is that it isn’t really that big of a deal – literally. The company has spent the past few years travelling the world tapping up investors and the people who run the world’s leading stock exchanges. After roaring like a lion about their forthcoming sale, they have brought forth a mouse: the shares will only be listed on the local stock market, and what’s more, only some 1.5 per cent of the company will be for sale.

Another 30 per cent will be sold to what are called “retail investors”. These are no “Sids”, the small investors so called after the 1980s British Gas ads that instructed the public to “Tell Sid” about the company’s share offer. These are not people buying 300 quid’s worth of shares through the post. No: these are wealthy and very wealthy local investors, often indistinguishable from the Saudi government-cum-royal-family that owns the rest of the stock. So no change there.

Valuations on the company vary widely, going all the way up to $2 trillion (which is to say two thousand billion dollars, or $2,000,000,000,000). That would make it one of the world’s largest companies – about twice as big as Apple, and three times larger than Royal Dutch Shell, by market capitalisation. However, as I say, only a fraction of that value (around $25 billion) is going to be swilling around on the stock market. The relatively few shares out there will only equal the value of a BT or a Tesco.

Numbers aside, what matters is what the Aramco sale tells us about the future of the oil industry and of Saudi Arabia. The obvious message is that even the Saudis want to de-carbonise. They are not stupid: they know that the Americans are fracking. They know that other oil producers can pump out the stuff as fast as they can, depressing the price. They know that the climate emergency is forcing governments to set ever more ambitious targets for net carbon neutrality, and that the world will likely be kicking its carbon habit well within the prospective lifetime of, say, Crown Prince Mohammed bin Salman.

The second, and perhaps more important, message is that the Saudis want to liberalise. They know that some investors will be moved by ethical concerns about the Kingdom. They know that the faster Aramco is uncoupled from the royal family and subjected to at least some shareholder scrutiny, the better. The Saudi crown prince has made some modernising moves – pitiful by Western standards (it seems odd to celebrate women being allowed to drive a car, or enter a restaurant by the same doors as men), but radical enough in the kingdom. Letting go (at least in part) of Aramco is an important next step.

The Saudi economy will need thorough restructuring if it is to make its living in the second half of the twenty-first century. The list is long and hard: privately-owned corporations free from state control; similarly independent company directors protecting the interests of shareholders; liberalised product markets; government procurement contracts; a service sector opened up to competition, including from foreign companies.

Yet the first priority must be Saudi society. A state shunned by much of the world for the murder of Jamal Khashoggi and a merciless proxy war in Yemen cannot win them back through economic policy alone. If the Saudi government wants to secure its future, it needs to rely on globally successful companies delivering rising living standards to a people who enjoy the same liberties we in the West have long taken for granted. A free economy works best in a free society, and until Saudi Arabia is free, its economy will never flourish.