Saudi Arabia’s balancing act: peace talks, a new economy and straddling the energy transition

The World Economic Forum Annual Meeting 2025 in Davos shed light on the transformation taking place in the Middle East, particularly in Saudi Arabia. As the global community grapples with economic uncertainties and geopolitical tensions, the country is emerging as a pivotal player in what can only be described as a delicate diplomatic and economic balancing act. The Kingdom's strategy is three-pronged: diversifying its economy away from oil dependency, positioning itself as a bridge between competing global powers and maintaining its role as a crucial energy supplier.

At the heart of this transformation is Vision 2030, Saudi Arabia's ambitious blueprint for economic diversification. The statistics shared at Davos paint a promising picture of success: non-oil activities now constitute 52% of Saudi GDP, marking a historic shift in an economy traditionally dominated by hydrocarbon revenues. With projections of 6.2% growth in non-oil sectors by 2026, the country is demonstrating that its economic diversification isn't merely aspirational – it's becoming a reality.

The most striking aspect of Saudi Arabia's diplomatic balancing act is its careful navigation of increasingly complex global power dynamics. Faisal Alibrahim, Minister of Economy and Planning, declared: "We want to be in the middle; our partnerships should remain strong with all stakeholders." This diplomatic positioning is yielding tangible results, with Riyadh hosting high-level talks between US and Russian officials on ending the Ukraine war, a development that showcases Saudi Arabia's emerging role as a global diplomatic broker.

The numbers back up this strategic positioning. Saudi Arabia's $770 billion investment in the United States, with potential expansion to $1 trillion, shows that the Kingdom isn't abandoning its traditional Western partnerships. However, this commitment to the US doesn't come at the expense of other relationships. The Kingdom is clearly signalling that it intends to maintain productive relations with all major powers.

The broader geopolitical context makes this moment particularly significant. According to the Global Cooperation Barometer 2025 presented at Davos by McKinsey & Company, international cooperation has plateaued since 2020. As McKinsey's Global Managing Partner Bob Sternfels noted: "Peace and security indices are at their worst levels since the Cold War." Against this backdrop, Saudi Arabia's emergence as a potential peace broker takes on added significance.

The energy transition discussion at Davos revealed another dimension of Saudi Arabia's evolution. As BlackRock CEO Larry Fink highlighted: "AI data centres in the US alone will require 300 GW of power within five years – six times the current levels." This projection places Saudi Arabia in a unique position as both a traditional energy powerhouse and a potential enabler of the AI revolution.

At the same time, with the country diversifying away from fossil fuels, Saudi Arabia can position itself in the global climate finance landscape. The Forum revealed that only 10% of required funding for net-zero commitments has been secured globally. More alarmingly, as Bob Sternfels pointed out: "The insurance industry faced $135 billion in costs due to natural disasters in 2024 alone – an all-time high."

These facts present both a challenge and an opportunity for Saudi Arabia. The country's $700 billion Public Investment Fund could help fill the massive global climate finance gap, positioning it as an essential partner in clean energy transitions. Rising disaster costs threaten fossil fuel infrastructure, yet create demand for Saudi expertise in heat-resilient construction and water management. By becoming a major climate financier, Saudi Arabia could maintain global influence even as oil markets decline, while gaining preferential access to emerging green technologies.

What makes this transformation particularly noteworthy is how it's taking place against a backdrop of global economic uncertainty. While IMF Managing Director Kristalina Georgieva reported strong US GDP growth projections of 2.7% (up from 2.2%), she also noted that "emerging markets are struggling due to declining productivity growth". Saudi Arabia's ability to maintain its transformation amid these global headwinds, while simultaneously stepping up as a diplomatic facilitator, is remarkable.

Looking ahead, Saudi Arabia faces multifaceted challenges. Its emerging mediator role carries diplomatic risks, while US investments remain vulnerable to policy shifts. Non-oil growth targets face regional competition, while pressure is building from a youth-heavy population demanding jobs. The country's core dilemma lies in energy: Davos discussions revealed both increasing climate costs and AI-driven energy demand growth. This requires Saudi Arabia to simultaneously manage fossil fuel assets while establishing clean energy leadership – a balancing act becoming increasingly difficult.

If the country can surmount these issues, we could be witnessing not just the transformation of a single nation, but potentially the emergence of a new model for how resource-rich nations can navigate the complex interplay between economic transformation, energy transition and geopolitical realignment.

As the discussions at the Annual Meeting 2025 have shown, Saudi Arabia – and more broadly, the Middle East – are no longer merely reacting to global trends; they’re actively shaping them.