Saudi Arabia’s ambitious push into mega-projects like Neom reflects a grandiose vision of economic transformation, yet beneath this veneer lies a fragile reality. The kingdom’s recent financial disclosures reveal a sharp decline in investments related to these sprawling ventures — an $8 billion hit at the end of 2024 — exposing the chasm between aspirational planning and economic sustainability. Neom, perhaps the most emblematic of these projects, has been heralded as the future of Saudi innovation, but escalating costs, operational hurdles, and unpredictable global oil markets threaten to turn this dream into a costly mirage. Despite the official narrative of diversification, the mammoth expenditures risk reinforcing Saudi Arabia’s dependence on oil revenues, even as they try to reinvent themselves as a global hub for technology and tourism.
Underlying Financial Volatility and the Limits of Oil Dependence
While the Public Investment Fund (PIF) boasts of nearly $1 trillion under management, the recent decline in gigaproject assets signals a warning sign. The shrinking proportion of funds allocated to these large-scale developments—down from 8% to 6%—coupled with a $8 billion writedown, indicates that the financial model may be overstretched. As global crude oil prices falter, Saudi Arabia’s economy, still heavily reliant on oil, faces increased volatility. The government’s attempt to offset this dependency by expanding into investments in global companies such as Tesla and Uber is commendable but insufficient, especially when dividends from oil—its primary revenue source—are under threat from declining demand and price pressures.
The Consequences of Over-Expansion in an Uncertain World
It’s tempting to see Saudi Arabia’s grand projects as a symbol of visionary leadership; however, the risks of over-ambition are glaring. Budget overruns and operational hiccups are emblematic of a project portfolio perhaps unchecked in its scope. The kingdom’s shift toward domestic investments and a reduced reliance on international markets—dipping from 20% to 17% of the portfolio—may be a strategic pivot, but it also underscores a deeply rooted vulnerability: an overreliance on oil revenues in a world gradually moving away from fossil fuels. Moreover, raising billions in public and private debt signals that the country is financing its ambitions with borrowed funds, a precarious strategy that could backfire if economic conditions deteriorate further.
The Paradox of an Economic Diversification Dream
The core contradiction of Saudi Arabia’s Vision 2030 and projects like Neom is their reliance on a hope: that technological innovation and urban development will compensate for the declining profits from oil. Although plans to build futuristic cities and cultivate new industries are impressive on paper, they are riddled with challenges such as ballooning costs, planning delays, and a global climate increasingly hostile to fossil-fuel-dependent economies. The low oil prices forecasted by some experts threaten to diminish Aramco’s contributions, which have historically bolstered the fund’s resources. Here lies the paradox: the very foundation of Saudi’s diversification strategy is under threat from the global energy transition, raising legitimate doubts about whether these megaprojects are sustainable investments or just high-cost illusions in a fast-changing world.
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