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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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50,000 Laid Off In Saudi Arabia As Oil Crisis Bites Deeper

50,000 Laid Off In Saudi Arabia As Oil Crisis Bites Deeper

Saudi construction giant Binladin group has laid off tens of thousands of workers, leading to rare protests, as workers torch seven buses demanding compensation as low oil prices begin to bite in earnest.

The numbers of layoffs range from 50,000 to 77,000, many of who say they were not paid for several months.

Binladin group, which last year had all of its contracts frozen after a crane fell over the Grand Mosque in Mecca, killing 107, denied that it owed its workers any compensation. The company said the layoffs were a “routine” adjustment to a slowdown in construction activity in the country. Related: U.S. Crude Imports Surge After Long Period Of Decline

It certainly is routine to cut your workforce when times are bad, and the times seem to be especially bad in Saudi Arabia, and not because of a “slowdown” in construction per se. The country is increasingly feeling the pinch of low oil prices, and despite deputy crown prince Mohammed bin Salman’s bold reform plan, chances are that things will get worse before they get better.

Last year, when bin Salman effectively took the reins of the government, it was with surprise that this government found out how quickly money was flowing out of the state’s coffers now that oil had lost two-thirds of its value.

As a nation almost entirely dependent on oil for its revenues, the adjustment that the oil price rout prompted has been a painful one, and this pain is now becoming increasingly evident, with civil unrest a possibility. Civil unrest in Saudi Arabia will, in all likelihood, pull oil prices up higher, even if the country, as has been suggested, increases its production further. Related: Saxo Bank: Upside For Crude Diminishes As Traders Shift Focus

One of the first things bin Salman did when the effect of low oil prices really started to be felt in the treasury was to raise the prices of consumer goods and utilities—and substantially at that—by removing state subsidies.

Naturally, this led to disgruntlement among the population. Further measures foreseen in the Vision 2030 plan include the introduction of VAT and other taxes on luxury goods and soft drinks. This, again, will not be taken well, even though bin Salman said the plan involves measures aimed to make the transition easier on lower-income Saudis.

The workers laid off by Binladin group are foreigners, mostly Egyptians, according to the media reports. This doesn’t mean they will go gently into the good night with their newly issued exit visas. Related: Is This The Biggest Red Herring In Oil Markets?

What’s more, an unnamed company official was quoted by Saudi daily Al-Watan as saying that Binladin group planned to sack another 12,000 people¬—all Saudis. The company employs some 17,000 Saudi nationals.

That doesn’t look like a routine adjustment of the workforce. It looks like a radical restructuring in a hostile market environment and an unfriendly government that is delaying payments to the company and has barred it from starting new projects before the Grand Mosque accident is fully investigated.

The government is at a crossroads and the decisions it makes in the near future could entirely change the game in the desert kingdom.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mick on May 07 2016 said:
    A very naïve young prince with no political experience has made some disastrous decisions. He stuck to his "no cuts" oil production against the advice of many advisors and he entered into a war where he can't win, against the advice of more seasoned military people. He is now going to find out that arrogance is not the hallmark of success.
  • Hatim on May 07 2016 said:
    The national claim, in fact, is to shutdown this well-known corrupted company.
    I don't know why you say "unfriendly gov.", the government did the best. It stopped dealing with this "stupid" company. It never finished a project on time! of course the government should look at another companies to do these projects. There are thousands of project that are still under construction, the gov. shouldn't be too friendly in order to develop the nation.
  • Abdul Wajid on May 09 2016 said:
    Assalamualaikum o rahmathullahi o barkathhu, KSA is the head of OPEC, GCC etc., the main oil producer for the world you have to control the oil production and the prices not others, my request and appeal.........................
  • T.J. Thomas on May 09 2016 said:
    On the good side, maybe the Saudis will now have to quit obsessively tearing down their historical buildings.
  • John Williams on May 09 2016 said:
    The good news - all this is happening to Saudi. The bad news...all this is happening to Saudi, a country with HUUUGE (borrowed from The Donald) oil reserves, exporters of Wahhabism - that most fundamentalist and ultra violent Sunni Islam cults, and a sort of wishy washy friend of ours. The people that have grown fat and sassy on the largess of the government trying to keep them passified and allowing the royal family to remain at the head of the government are now faced with loss of jobs, increases in prices and mullahs that are probably gathering the pitchforks and hand grenades. The dry timber that is the Middle East is getting more dangerous by the day and it won't take more than a small spark to set the fire to end all fires.
  • A. S. Matehw on March 06 2017 said:
    The oil producing countries, especially Saudi Arabia with her massive construction march would be faced with critical economic challenges in the days ahead. Why, Venezeula while sitting at the top of the world's largest oil reserve of 298 billion barrel is now hungry with empty stores?

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