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Saudi Arabia continues to heavily depend on oil revenues, and the recent dramatic decline in oil prices poses significant challenges for the kingdom's ambitious Vision 2030 initiative, which encompasses a variety of megaprojects aimed at diversifying its economy.

Among these projects is the futuristic city of Neom, envisioned to rise along the Red Sea, with The Line serving as its central feature. This groundbreaking urban development aims to transform how people live and interact with their environment, but its progress is now jeopardized by fluctuating oil prices.

Historically, the kingdom has funded its initiatives largely through oil sales. According to the US Energy Information Administration, global oil prices averaged $81 per barrel last year. However, recent market instability, exacerbated by geopolitical tensions and trade tariffs initiated during the Trump administration, has resulted in a steep drop in prices.

As of Monday, Brent crude, the international benchmark for oil, fell to as low as $62 per barrel, while US West Texas Intermediate (WTI) oil prices plummeted to around $59 per barrel. This marks the first time since 2021 that WTI has dipped below the $60 threshold.

In light of these developments, Goldman Sachs has revised its forecasts for oil prices in the upcoming year, now projecting Brent to average $58 a barrel and US oil around $55. The diminished oil prices directly impact Saudi Arabia's revenue, as it remains the world’s largest oil exporter. Tim Callen, a visiting fellow at the Arab Gulf States Institute in Washington, emphasized the pressing need for the kingdom to either enhance revenue streams from non-oil sectors or implement significant budget cuts.

“I anticipate that there will be some scaling back of plans, with some lower-priority projects being canceled and others delayed over a longer timeline,” Callen stated, highlighting the tough choices that lie ahead for the Saudi government.

In an effort to mitigate the financial strain, Callen also noted that the Saudi government, alongside the Public Investment Fund—its sovereign wealth fund—and Saudi Aramco, the state-owned oil company, might seek to bolster their finances through borrowing or tapping into capital markets this year.

Despite ongoing efforts to diversify its economy through investments in tourism, renewable energy, and technology, oil continues to be the cornerstone of Saudi Arabia’s financial framework. For instance, the Saudi finance ministry had previously projected revenues of approximately $316 billion for the 2025 fiscal year, against projected spending of about $342 billion, resulting in a budget deficit of around $26 billion.

Moreover, Saudi Aramco announced last month that it expects its dividends to decline to $85.4 billion this year, a substantial drop from $124 billion in 2024 and $97.8 billion in 2023. This decline in oil prices is likely to further exacerbate the kingdom’s revenue challenges.

“They’re hitting a wall,” commented Abdullah Alaoudh, a director at the Middle East Democracy Center, emphasizing the gravity of the situation facing the kingdom.

Reports from November indicated that plans for The Line, an integral part of the Neom project, were being scaled back to prioritize the completion of a 1.5-mile development stretch, which is set to include a stadium for the 2034 FIFA World Cup. Additionally, Saudi Arabia has been designated to host the 2029 Asian Winter Games.

The CEO of Neom also resigned in November after six years, with no explanation provided for this departure, adding to the uncertainty surrounding the project.

The same month, Mohammed Al Aljaadan, the Saudi finance minister, characterized Neom as a “very long-term program” and played down concerns regarding immediate returns on investment. He insisted that the kingdom maintained a robust financial position and that developmental projects had not been significantly affected by current economic turmoil.

However, such statements have not quelled doubts regarding the sustainability of the kingdom’s grand ambitions. Many observers are left questioning whether these projects can continue without substantial adjustments.

“There is scope to raise more non-oil revenue through property taxes, income taxes, or even further increases in VAT,” Callen suggested. “However, a more probable response will be to slow down the implementation of capital spending projects and to increase borrowing in the hope that oil revenues will rebound in future years.”

The International Monetary Fund stated in April 2024 that Saudi Arabia requires oil prices to be around $96 per barrel to meet its spending commitments. Andrew Leber, a nonresident scholar in the Carnegie Middle East Program, expressed concerns that declining global oil prices would likely compel Saudi state entities to either significantly downsize or abandon several key megaprojects altogether.

Predicting the future of oil prices has become increasingly complex, particularly in the wake of the “extreme volatility” triggered by the Trump administration’s policies. Callen expects Saudi Arabia to prioritize projects that are essential for successfully hosting global and regional events, as well as those that directly enhance the quality of life for its citizens.

As the situation continues to evolve, it is evident that the lower oil prices—more specifically, reduced oil revenues—will place immense pressure on the kingdom to reassess and potentially scale back its ambitious megaprojects. Given that Neom is a flagship initiative of Crown Prince Mohammed bin Salman, Saudi officials are likely to seek ways to navigate these financial challenges while still pursuing their long-term vision.