Located at the crossroads of Europe, Asia and Africa, Saudi Arabia has long been a centre of religious and cultural significance, dating back to before the foundation of the modern Kingdom in September 1932. Since first striking oil in 1938 it has become the world’s largest oil producer and the only Arab country in the G20 (see Energy & Utilities chapter).
In recent years Saudi Arabia has embarked on an ambitious transformation agenda propelled by Vision 2030, a wide-ranging blueprint for socio-economic development which seeks to diversify the economy, modernise society and generate new sources of growth. Underpinned by oil revenue – national oil company Aramco recorded $161bn in profit in 2022 – the Kingdom is funding a series of so-called giga-projects and a programme of strategic investment aimed at future-proofing its economy by developing high-potential industries, including tourism, manufacturing and mining.
As geopolitical tensions abroad and the ongoing global energy transition generate uncertainty over future demand, stimulating non-oil growth will remain front and centre of Saudi growth strategy.
Geography
At 2.15m sq km, Saudi Arabia is the largest country in the Middle East, accounting for approximately 80% of the Arabian Peninsula, and making it the 13th-largest country in the world. The Kingdom is covered by a series of interconnected deserts and scrubland, the largest of which is the roughly 650,000-sq-km Rub Al Khali (Empty Quarter) in the south, which is the biggest continuous sand desert in the world. Saudi Arabia contains numerous wadis, or dry riverbeds, but no natural lakes, rivers or streams. According to the World Bank, less than 1% of the total land area is well suited for agriculture.
Saudi Arabia shares land borders with Jordan, Iraq and Kuwait in the north; Qatar and the UAE in the east; and Oman and Yemen in the south. It is also connected to Bahrain off its east coast by the 25-km King Fahd Causeway. The Kingdom’s west coast runs along the Red Sea, while the eastern region spans the Al Ahsa Oasis and the oil-rich Eastern Province.
Climate
Saudi Arabia is hot and extremely arid year-round, like much of the rest of the Gulf, and does not have clearly defined seasons. May through September are typically regarded as the summer months, during which temperatures can be as high as 45-55°C. The heat is felt the most in the interior, which is also characterised by low humidity.
Temperatures cool in the winter months of November to February to an average of 19-25°C. Winter temperatures can drop below freezing in central and northern Saudi Arabia, especially at night, with occasional snowstorms in the north. During the seasonal transition period from February to May, violent sandstorms sometimes occur. Average annual precipitation is around 8 cm, almost all of which falls between December and March, when tropical winds can cause monsoons in the south and south-west.
Population
The population was largely nomadic until the early 1960s, when rapid economic development fuelled by new oil revenue prompted a process of urbanisation; by 2010 more than 95% of the country’s citizens were settled. According to the most recent census results released in May 2023 by the General Authority for Statistics, the total population stood at 32.2m in 2022, up from 30.8m the previous year. The Kingdom’s population has risen by 34.8% since 2010, with similar rates of growth seen for both Saudi citizens and non-nationals.
Population density stood at about 17 people per sq km in 2023, though the figure is substantially higher in cities and urban areas. As of mid-2018 Riyadh Province, which is home to the capital and largest city, held 8.4m people, while Makkah Province, home to the second-largest city of Jeddah and the holy city of Makkah, held 8.8m people. The Eastern Province and its capital of Dammam counted over 5m people.
Demographics
The fifth census in the Kingdom’s history took place in 2022 instead of 2020 due to the Covid-19 pandemic. According to the results of the initiative, Saudi nationals accounted for 58.4% of the population, while non-nationals made up the remaining 41.6%. The Kingdom’s population is young, with an estimated 60% under the age of 30.
The foreign population, which represents the world’s third-largest immigrant cohort, comes from a variety of Asian countries, including the Philippines, India, Pakistan, Afghanistan and Indonesia, among others. The Kingdom is also home to a large Western population, including nationals from the UK, the US, the EU and Canada. The majority of expatriates live in Riyadh or other major urban centres.
The country is pursuing a policy of Saudiisation in many industries, whereby Saudi nationals fill a stipulated minimum proportion of jobs in a given sector to reduce dependence on overseas workers in key professions. Although the non-Saudi population declined by 8.6% during the pandemic due to the economic slowdown, the trend quickly reversed as labour and visa laws were relaxed, and new job opportunities were created. Overall unemployment among Saudi nationals dropped to 8% by the end of 2022, while total unemployment stood at 4.8%.
Language
The official language of the Kingdom is Arabic, of which there are two predominant dialects: Najdi and Hejazi. The large expatriate population means that a number of other languages are also spoken, including Urdu, Malay and Tagalog. While Arabic is used for official and formal purposes, English is widely spoken by Western expatriates and in places of business. Most road signs in the country are written in both Arabic and English.
Religion
As the birthplace of the Prophet Muhammad and the home of Makkah and Medina, Saudi Arabia is an Islamic country, with the king holding the title of Custodian of the Two Holy Mosques. The majority of Saudis are Sunni Muslim, while a minority – mostly living in the Eastern Province – are Shia. The Wahhabi ideology, a strict branch of Sunni Islam espoused by the 18th-century imam Muhammad ibn Abd Al Wahhab, has played an important role in society since the first Saudi state was created.
Religion is central to social, political and economic life, and under the Basic Law of Saudi Arabia, which was issued by King Fahd bin Abdulaziz Al Saud in 1992, the Quran serves as the basis for all the Kingdom’s laws, rules and regulations. Islam informs and defines all areas of life, including the legal system, public behaviour, marriage relations, culture and the calendar. All Saudi nationals are required to abide by sharia law, which mandates daily public prayer, and the paying of zakat, or religious charity. Likewise, daily prayers and fasting during the holy month of Ramadan are widely observed.
Enforcement of strict religious rules has eased somewhat in recent years, alongside efforts to empower women to play a more active role in the economy and society. Through the Hajj and Umrah pilgrimages, which are considered religious obligations and cornerstones of Islamic life, Saudi Arabia attracts around 19m pilgrims annually from around the world and aims to welcome 30m by 2030.
History
Despite the fact that the vast majority of the Arabian Peninsula is covered by desert, nomadic tribes have called the area home for thousands of years. The earliest recorded archaeological evidence discovered on the peninsula dates back to the third millennium BCE, when the Dilmun civilisation occupied an area that includes the modern-day countries of Bahrain, Qatar and Oman, as well as parts of Iran and Saudi Arabia’s Eastern Province. In the first millennium BCE, the ancient Thamud tribe moved from southern Arabia to what is now the Medina region, where they occupied a series of towns until the middle of the first millennium CE.
The history of the Arabian Peninsula from 600 CE onwards was largely characterised by the rise of Islam, which began with the birth of the Prophet Muhammad in Makkah in around 570 CE. By the time of his death in 632 CE, the majority of the Gulf had been united under Islam. By 800 CE, as a result of rapid expansion by early Muslim caliphs and leaders, Islam had become the predominant religion over a wide area, spanning from what is now Spain and Portugal in the west, to Central Asia in the east.
Early States
With political power concentrated in Damascus and Cairo during the medieval period, a handful of nomadic and semi-nomadic groups came to control the Arabian Peninsula. Among the most powerful of these groups were the Hashemites, or Banu Hashim, a clan within the larger Quraish tribe that is descended directly from Prophet Muhammad, who came to control much of the eastern Hejaz region of Arabia during the second millennium CE.
The Al Saud family, which today rules Saudi Arabia, has held intermittent control of the Nejd and other parts of central and eastern Arabia since the mid-1700s. In 1744 Muhammad ibn Saud, then-head of the Al Saud family, established an alliance with the imam Al Wahhab to unify the Arabian Peninsula under the banner of Islam. The first Saudi state, which was based in Diriyah, controlled a large area until 1818, when the Ottomans recaptured it during the course of the Ottoman-Saudi war.
During the second Saudi state, which was formed in the wake of the war and based out of Riyadh, the Al Saud family ruled over a substantial area in central Arabia from the early 1820s until 1891, when it succumbed to tribal infighting. In the wake of this, the then-head of the family, Abdul Rahman bin Faisal Al Saud, fled to Kuwait with members of his family, including his son Abdulaziz Al Saud. The latter is the founder of the third Saudi state, which is synonymous with modern-day Saudi Arabia.
New Beginning
In 1902, when he was about 26 years old, Abdulaziz Al Saud returned to Riyadh and conquered the city with a small group of men. Over the next few years the young ruler worked to consolidate his control over most of the Nejd region, where the Al Saud family remained popular among the local inhabitants. By 1912 Abdulaziz had gained control of most of central and eastern Arabia, and over the following two decades continued to expand his reach across the peninsula, negotiating with local rulers and colonial powers when possible, and resorting to force when necessary. In September 1932 Abdulaziz announced the formation of the Kingdom of Saudi Arabia, and named himself king.
Six years after the modern state was formed, US company Standard Oil discovered oil in commercial quantities in the Eastern Province city of Dammam. The find, which eventually revealed the second-largest reserves of crude oil in the world, changed the young country forever. By the mid-1950s oil exports accounted for the majority of government income, and Saudi Arabia embarked on a series of large-scale, government-led economic development projects funded by this new revenue stream.
Economy
In 2022 Saudi Arabia achieved the highest growth rate among G20 economies at 8.7%, despite global headwinds. The Kingdom is a permanent member of the G20 and, under its first presidency in 2020, virtually hosted the G20 Leaders’ Summit in Riyadh. Saudi Arabia’s growth in 2022 not only exceeded expectations, it represented the Kingdom’s highest growth rate in over a decade, as GDP value broke the $1trn mark for the first time.
According to the IMF, Saudi Arabia is categorised as an emerging market economy, a grouping that includes countries such as China, India, Russia and Turkey. The World Bank, for its part, classifies the Kingdom as a high-income, non-OECD country. According to the latest data from the World Bank, Saudi Arabia ranked as the 17th-largest economy in the world in 2022, with a combined GDP of $1.1trn.
Hydrocarbons income has traditionally accounted for the vast majority of pubic revenue; however, in 2016 the government launched Vision 2030, a bold economic diversification plan with the central aim of transitioning the economy away from oil (see Economy chapter). As a result, the Kingdom’s economic performance has been driven by both oil and non-oil activities in recent years, both of which have recovered as pandemic pressure faded. Although hydrocarbons remained the largest contributor to GDP in 2022, at 32.7%, the manufacturing sector accounted for 8.6% and wholesale and retail 8.2%. Additionally, the non-oil sector grew by 5.4%, with transport and storage leading the way at 9.1%, followed by manufacturing at 7.7%.
In early 2019 Saudi Arabia redesigned the governance structure of Vision 2030, announcing the launch of the National Industrial Development and Logistics Programme (NIDLP) and bringing the number of Vision Realisation Programmes to 13. NIDLP aims to guide growth in the high-potential industry, mining, energy and logistics sectors.
In early 2021 the second version of the Public Investment Fund (PIF) programme was inaugurated, outlining a number of initiatives to be undertaken by the sovereign wealth fund in the years leading to 2025. In line with Vision 2030, in its second edition the PIF will continue its endeavour to uncover new opportunities for non-oil GDP growth, generate jobs, increase local content, empower the private sector, improve quality of life and solidify the Kingdom’s regional and global leadership position.
In June 2021 Saudi Arabia launched its National Transport and Logistics Strategy, a comprehensive plan to increase transport and logistics’ contribution to GDP from 6% to 10%, helping to increase non-oil revenue to $12bn by 2030. In 2023 the Kingdom jumped 17 spots in the World Bank’s Logistics Performance Index, to 38th out of 155 countries, less than two years after the launch of the strategy.
In October 2021, in line with the Paris Agreement on climate change and Vision 2030, the Kingdom announced a target of becoming a net-zero economy by 2060 and launched the Saudi Green Initiative (SGI), which represents the first wave of over 60 programmes and projects designed to contribute to the growth of the green economy. The SGI’s objectives include developing clean energy, offsetting emissions and protecting the environment. It also aims to maintain an investment fund for circular carbon economy solutions, targeting more than SR700bn ($186.6bn) in green investment by 2030. To strengthen this commitment, in March 2023 the Cabinet approved the establishment of a Regional Centre for Climate Change headquartered in Riyadh.
Investment
The government has worked to open the Kingdom up to foreign direct investment (FDI) in recent years. Its reputation for political stability has historically made it a popular destination for FDI in the MENA region. Following a decrease in levels during the prolonged oil price slump starting in 2016, FDI inflows rebounded in 2018.
In February 2021, in an effort to attract more FDI and promote domestic production, the government announced it would exclude foreign companies with regional headquarters outside the Kingdom from public tenders from 2024. Under the Programme HQ strategy, Saudi Arabia had licensed 44 international companies to establish regional headquarters in the capital Riyadh as of October 2021, as part of an ongoing push to become a regional commercial leader and compete more assertively for foreign capital and talent, as well as diversify the economy (see Economy chapter). Participating multinationals are from sectors such as technology, food and beverages, consulting, and construction, including Unilever, Baker Hughes, Siemens, PepsiCo, Schlumberger, Deloitte, PwC and Bechtel, among others. The Kingdom expects the number of participating companies to reach 480 by 2030. Khalid Al Falih, the minister of investment, announced that companies relocating in 2023 with the intention of securing government contracts could receive tax exemptions.
Additionally, in March 2021 the Kingdom launched Shareek (“partner” in Arabic), an investment programme that aims to facilitate FDI through government and private sector collaboration.
Figures from the Saudi Central Bank from March 2022 showed that FDI reached $19.3bn in 2021 – its highest level in more than a decade – primarily aided by investment in the expansion of the pipeline network of Aramco. However, in 2022 FDI fell by 60% to $7.9bn. Nonetheless, this represents the second-highest annual FDI figure since 2016.
At the end of 2021 the Kingdom announced the launch of the National Investment Strategy (NIS), which is expected to generate SR4trn ($1.1trn) in investment through to 2030. The strategy will have a key role to play in injecting funding into the economy this decade. In addition to investment under the NIS, Shareek is expected to generate SR5trn ($1.3trn), and the PIF is set to contribute SR3trn ($800bn), while the economy will receive SR10trn ($2.7trn) from direct government spending and a further SR5trn ($1.3trn) from private consumption spending over the same period, according to government projections. This represents a total capital injection of roughly SR27trn ($7.2trn) by 2030.
Energy Resources
Saudi Arabia is one of the most important oil producers in the world, holding 17.2% of total crude reserves as of end-2020, according to BP’s “Statistical Review of World Energy 2021” report. Total proven oil reserves were estimated at around 298bn barrels (see Energy & Utilities chapter).
The country has an oil production capacity of 12m barrels per day (bpd), though it produced roughly 11.5m bpd in 2022. Despite targets to boost capacity beyond 13m bpd as it seeks to consolidate its dominance in the market, particularly in light of the West’s shift away from Russian crude in the wake of the invasion of Ukraine in 2022, Saudi Arabia announced on April 2023 that it would cut oil production by 500,000 bpd, less than 5% of its average production, from May to December to stabilise the oil market.
The main energy player is government-owned Aramco, which controls nearly all the country’s oil and gas reserves, and is estimated to be the world’s largest oil company. In line with Vision 2030, the initial public offering of 5% of Aramco’s shares was made in November 2019, raising $25.6bn. In 2022 it posted a record profit of $161bn, up 46.5% on 2021.
Saudi Arabia is one of the five founding members of the Organisation of the Petroleum Exporting Countries (OPEC) and was traditionally considered the global swing producer. In 2017 it spearheaded a historic agreement between OPEC and non-OPEC members designed to curb global oil production in an effort to stabilise prices, and took the lead on similar measures during the pandemic.
As of early 2021 Saudi Arabia’s proven natural gas reserves totalled 333trn cu feet, accounting for about 3.2% of global reserves – and 16% of total GCC reserves – making it the seventh-biggest producer in the world. Currently, the Kingdom has the lowest intensity of gas burning in gas plants worldwide, at less than 1%, and plans to completely eliminate gas burning by 2030. In recent years Aramco has discovered five new natural gas fields across the country, with the potential to produce a combined 100m cu feet per day, and it seeks to boost production of the fuel. These discoveries include the Jufrah gas field, projected to hold 200trn cu feet of gas and the site of an estimated $110bn investment, which Aramco could open to international investors.
Expanding gas output has become a priority as the country looks to reduce the oil burned for power production, while also hitting a goal of reaching netzero emissions by 2060. In addition to power generation, natural gas can serve as cleaner feedstock for manufacturing and water desalination. Saudi Arabia also aims to use the Jufrah gas field to produce energy from hydrogen, an emerging green industry estimated to be worth $700bn globally by 2050.
Administration
Riyadh is located in the Nejd region, a rocky plateau that covers a large swathe of land in central Saudi Arabia. Jeddah, meanwhile, is located on the Red Sea coast and is bordered by the Sarawat Mountains to the east. At the administrative level, the Kingdom is organised into 13 provinces, including the Eastern Province – which is home to the bulk of Saudi Arabia’s oil reserves – Riyadh Province, Makkah Province and Medina Province. Each province has its own provincial capital. The provinces are further divided into between three and 20 governorates, with a total of 118 throughout the country. Each of the governorates are divided into sub-governorates for greater local oversight.
Government
Saudi Arabia is a monarchy and the royal family is the Al Saud family, the direct descendants of King Abdulaziz, the country’s founder. The current monarch, King Salman bin Abdulaziz Al Saud, assumed the throne following the passing of his half-brother, King Abdullah bin Abdulaziz Al Saud, in January 2015. Since then King Salman has abolished a number of government councils, subsequently replacing them with two major councils: the Council for Political and Security Affairs, and the Council for Economic and Development Affairs, both of which are currently chaired by Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud.
In 2015 King Salman named Prince Mohammed bin Naif Al Saud crown prince, but he was relieved of the title in June 2017 and replaced by the then-Deputy Crown Prince Mohammed bin Salman, the son of King Salman. Crown Prince Mohammed bin Salman is seen as a moderniser, seeking to meet the needs and aspirations of the population in a rapidly changing world while asserting Saudi Arabia’s geopolitical influence on the global stage.
Councils
The top government body in the Kingdom is the Council of Ministers, also known as the Cabinet, which is led by the ruler and consists of 30 royally appointed ministers serving four-year terms. The government’s relationship with, and its responsibilities towards, its citizens is codified by the Basic Law, which was passed by King Fahd in 1992.
The Majlis Ash-Shura, or Consultative Council, has an advisory role in the government and is made up of 150 members across 13 committees, all of whom are appointed by the king. However, the organisation has limited powers and cannot pass or enforce laws. The body broadly serves as a forum for policy debates, and it can interpret existing laws and propose new legislation to be passed by the ruler.
The council advises the king on a variety of issues, including the annual budget and long-term economic development plans. The Consultative Council also has the power to call ministers in for questioning. Around 70% of the members of the current council hold PhDs, many of which were granted from US and UK universities. Women make up one-fifth of the Consultative Council’s total membership.
While the body is primarily an advisory group, it has gained a substantial number of new powers over the past decade. For example, its mandate now includes participating in the Kingdom’s complex budgeting process, which was considered to be a significant increase in the council’s responsibility.
Succession
In 2006 a law formalising the succession process in the Kingdom was announced. Following the death of the reigning monarch, a committee composed of male heirs of King Abdulaziz will be convened to officially name the crown prince the new king. This law helped to facilitate a smooth transition in 2015, with the accession of then-Crown Prince Salman to the throne.
Power has traditionally been held by King Abdulaziz’s sons, with accession passing from brother to brother. The appointment of Prince Mohammed bin Salman as crown prince overturned decades of royal custom, as succession from father to son had only taken place once before in Saudi Arabia’s history.
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