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Oil-rich Saudi Arabia vows to end its 'addiction to oil'

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Saudi Press Agency/Handout via Reuters

(Read caption) Saudi Arabia's King Salman and Jordan's King Abdullah review the honour guard during an official welcoming ceremony in Riyadh, Saudi Arabia, in this handout received April 27, 2016.

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Oil-rich Saudi Arabia is now starting to contemplate a future in which gasoline and diesel now longer power the majority of the world's cars.

Over the next decade and a half, it hopes to transition its economy away from oil, largely by investing today's oil revenues in other industries.

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It's part of a plan known as "Vision 2030" that Saudi Arabia claims will end its "addiction to oil."

Deputy Crown Prince Mohammed bin Salman, the plan's chief architect, believes the Saudi economy will survive "without any dependence on oil" as soon as 2020, The Washington Post recently reported.

It would be a major but necessary transition for the Saudi economy.

In recent years, oil has accounted for an estimated 90 percent of the kingdom's income, but declining prices led to a $98 billion deficit last year.

As countries across the globe enact stricter fuel-economy standards and other measures to curb carbon emissions, Saudi Arabia will only be able to depend less on oil revenues.

The government's first major step to address that trend will be an initial public offering (IPO) in Aramco, the Saudi national oil company, it says.

While the government plans to sell less than 5 percent of Aramco, the company's sheer size—Deputy Crown Prince Mohammed believes it will be valued at $2.5 trillion—has some analysts already describing this as the largest IPO in history.

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Some funds from the sale will be used to establish a $2 trillion "Public Investment Fund," which will then invest in other industries.

The goal is to make investment income the main source of Saudi revenue, Mohammed has said.

Yet despite Aramco's immense value, Saudi Arabia's opaque government and business practices could keep investors at arm's length.

Much of how Aramco is run remains highly unclear to potential investors, an oil-industry insider told Green Car Reports on the condition of anonymity.

The Aramco IPO is the most prominent of a number of policies proposed in the Vision 2030 plan.

It also calls for the diversification of the Saudi workforce by encouraging greater participation by women, and a "green card" program for guest workers from other Arab and Muslim countries.

The plan would also see Saudi Arabia focus more on its tourist industry, and cultivate a domestic defense industry as an alternative to buying arms from countries like the U.S.

Still, Saudi Arabia will continue to keep pumping oil for decades, until that activity is no longer economically viable.

The government wants to diversify not out of concern for pollution related to burning fossil fuels, but because it knows an oil-dependent economy puts it in a vulnerable position.

This article first appeared at GreenCarReports.