Vol. 2, No. 11 November 26, 2002
The recuperation of Iraq’s oil industry could prove a major threat to the oil-dependent Saudi economy. Saudi per capita income has fallen from about $23,000 in the early 1980s to about $7,000 last year.
Prince Abdallah has attempted to reform the Saudi economy and reduce expenditures on subsidies and perks, including the costly stipends paid to 7,000 royal princes.
King Fahd’s full (Sudairi) brothers, particularly Defense Minister Prince Sultan and Interior Minister Prince Na’if, have shored up their relations with Saudi religious conservatives and endowed Islamic foundations that fund the militants.
War and Oil Prices
The UN Security Council’s unanimous resolution on Iraq received the blessing of all the Arab countries and probably produced a sigh of relief in Riyadh, as the threat of imminent war was, at least temporarily, postponed. Yet, it seems that the potential political fallout of a U.S. attack on Iraq is not perceived by the Saudi rulers to be as threatening to their regime as are the economic ramifications of the Iraqi regime’s collapse. As early as 1998, when oil prices were about $12 a barrel, Crown Prince Abdallah had issued a strong warning about the state of the Saudi economy. War with Iraq is likely to cause oil prices to temporarily spike sharply. However, many analysts believe that if America were to establish a new regime in Baghdad, the recuperation of Iraq’s oil industry could prove a major threat to the oil-dependent Saudi economy as well as to the already sharply reduced standard of living of the Saudi population.
The windfall from high oil prices in recent months has substantially reduced Saudi Arabia’s originally projected $12 billion deficit for 2002 on a budget of $54-55 billion. Yet, unless Riyadh introduces far-reaching fiscal reforms, Saudi Arabia’s enormous national debt (largely internal), amounting to more than $170 billion (2002), is forecast to continue to rise in the coming year. Moreover, an August IMF report on the state of the Saudi economy portrayed a sad picture of Riyadh’s endeavors to reduce the government’s expenditures, 80 percent of which are earmarked to pay salaries, subsidies, and national debt service.
Limited Growth, Declining Income
Riyadh has done little to reduce its extremely costly but politically sensitive welfare system, its multi-billion dollar subsidies, and practically free utilities enjoyed by Saudis. It is also slow in taxing over 5 million expatriate workers and experts, and is putting off an explosive proposal to tax its own citizens. The IMF report also reveals that Saudi Arabia’s real GDP growth in recent years has shrunk to 1.2 percent as its annual population growth has been steady at 3 percent. These factors and the slow pace of economic diversification, privatization, and attracting non-governmental investment explains the dramatic fall in Saudi per capita income from about $23,000 in the early 1980s to about $7,000 last year.
Another grave problem faced by Saudi Arabia is the rapid growth of unemployment among its citizens. According to Riyadh’s labor minister Al-Nimleh (September 22), the number of unemployed Saudis has reached 3.2 million, which is 15 percent of the Saudi workforce out of a citizen population of about 16 million (half of whom are under 21 years of age). However, neutral sources believe that the number of unemployed Saudis is much higher. Paradoxically, Saudi Arabia employs 5-6 million expatriates who transfer many billions of dollars to their respective countries annually. This has become even more threatening as the number of Saudi citizens has quadrupled over the last 25 years.
Moreover, the Saudi education system (clergy-controlled until recently), whose curricula is more than 70 percent religious-related studies, has produced graduates totally unsuitable for the job market. Indeed, according to desert mores, Saudis abhor any employment that is related to manual activity. In the past, most school and university graduates opted for employment in undemanding, already bloated government service. Yet, as the kingdom’s economic crisis has deepened, Crown Prince Abdallah has instructed his government to freeze the hiring of unskilled employees. Nevertheless, the patriarchal Saudi regime has not yet suffered a serious threat to its stability, largely because of the many perks enjoyed by its subjects and its legitimization by the leading establishment Wahhabi clergy (ulama). This may explain Riyadh’s reluctance to activate essential reforms.
The Impact of Restored Iraqi Oil Production
Economists estimate that in order to halt the growth of its national debt and maintain a relatively balanced budget, Saudi Arabia needs to produce at least 8 million b/d of oil priced at over $20 a barrel. While an American attack on Iraq would immediately trigger a short-lived spike in oil prices, many analysts believe that if America were to help a “pro-Western” Iraqi government to develop the country’s oil resources, such a price spike would likely be followed by a sharp decline in oil prices (possibly to well under $20 a barrel). An additional supply of Iraqi oil would force OPEC to make room for it in its quota allocations if it tries to sustain oil prices around $20 a barrel or lower. Moreover, OPEC is unlikely to benefit from a gradual revival of global economic growth next year anyway because incremental non-OPEC production is projected to be 1.3 million b/d.
A senior Aramco official disclosed on October 31 that Saudi Arabia’s oil production capacity of 10-10.5 million b/d is to be increased by an additional 800,000 b/d by mid-2004. This is not surprising considering that proven Saudi oil reserves are said to be about 265 billion barrels, representing more than 25 percent of the world’s total proven reserves. A CSIS expert on the Persian Gulf recently stated that U.S. Mideast policy should take into account that in the coming two decades the industrial countries will become increasingly dependent on OPEC, especially Saudi, oil (Financial Times, November 9, 2002), despite U.S. endeavors to develop oil resources in the Caspian region and West Africa. In our opinion, this argument is somewhat questionable, especially if the U.S. were to establish a “pro-Western” government in Baghdad and help develop the Iraqi oil industry.
Power Struggles within the Regime
Actually, the Al Saud regime will continue to depend on the U.S. protective umbrella. Engendered by the royal family’s excessive corruption and privileges, this dependence is being exacerbated by widespread criticism of their regime by the younger generation of Saudis and the kingdom’s conservative middle class. Even more dangerous to the Sauds’ position is the growing rift between the rulers and their establishment ulama over the government’s reform program and low-key special relations with America cultivated by Crown Prince Abdallah.
In the 1960s and 1970s King Faysal espoused pan-Islamism to fight Nasser’s pan-Arabism. He gave refuge to Muslim Brethren escaping persecution by secular, totalitarian Arab governments. The Muslim Brethren and the Wahhabi ulama joined forces to spread extremist Islamist ideology beyond the kingdom’s borders. Ironically, King Faysal was assassinated in 1975 by a “deranged” fundamentalist nephew. Increasing anti-American and anti-Saud sentiments reached a boiling point following Iraq’s 1990 invasion of Kuwait and the arrival in Islam’s Holy Land, at the Sauds’ invitation, of 500,000 American “infidel” troops (opposed by Crown Prince Abdallah). Abdallah is now faced with the need to reverse his late half-brother King Faysal’s policies that are part of the heritage of the kingdom and endemic in Saudi society.
Despite opposition from King Fahd’s six Sudairi brothers, Crown Prince Abdallah managed to preserve his position as deputy prime minister as well as the commander of the praetorian National Guard. In the late 1980s he surprisingly entrusted the arming and training of the National Guard to the Pentagon. This was the beginning of the reversal of this ascetic, ultra-conservative prince’s stance concerning relations with Washington. Such a transformation gathered momentum after King Fahd suffered a severe stroke in 1995 and Crown Prince Abdallah assumed practically all his responsibilities. On the other hand, the Sudairi brothers, led by Prince Sultan (Defense Minister) and Prince Na’if (Interior Minister), began to shore up their relations with the Saudi conservatives and ulama, especially after Desert Storm. They opposed the American presence in the kingdom and rejected the U.S. proposal that Riyadh join the U.S.-planned “Gulf Security Alliance.” The Sudairis’ support for Islamist causes increased further as they become apprehensive lest the power they garnered over 25 years of Fahd government would erode.
Challenges for Prince Abdallah
The royal family was lucky to have Prince Abdallah at the kingdom’s helm at a time when Saudi Arabia’s economy was in decline and criticism of the corrupt and privileged Saudi princes was widespread. Only the conservative and highly respected crown prince could attempt to reform the Saudi economy and reduce the kingdom’s expenditures on subsidies and other perks, among other things, aimed at buying the support of lower class Saudis, whose standard of living had sharply declined. Abdallah also had the moral stance that enabled him to meaningfully reduce the costly stipends paid to 7,000 royal princes and attempt to minimize this corruption.
President Bush’s war on international Islamic terrorism spearheaded by Saudis eroded the historically special relations between Washington and Riyadh, particularly because Riyadh had overtly refused to allow the U.S. to use its bases for the war in Afghanistan and seemed to be uncooperative with Washington’s campaign against Al Qaeda. Indeed, it took some time before Crown Prince Abdallah and his regime comprehended the depth of Washington’s anger and the hostility of American public opinion concerning Saudi-Wahhabi-inspired militant fundamentalism and its “way of life.” Covertly, Riyadh was more ready to cooperate on some matters (including the oil market) with Washington after President Bush targeted Iraq in his “axis of evil.” Yet, the extremely strong and emotional Saudi opposition to any cooperation with Washington’s plans to overthrow Saddam Hussein’s regime was led by the Sudairi brothers, other members of Al Saud, and the establishment ulama. It turned out that the Sudairis had been endowing “charitable foundations” with substantial amounts of money for some time that, among other things, funded Islamist militants far beyond Saudi Arabia’s borders (Al Qaeda included).
A London-based Yemeni weekly (Al-Mushahid as-Siyasi, September 19, 2002) claimed that Saudi Defense Minister Prince Sultan and his full brother Prince Salman, Governor of Riyadh, have been funneling substantial funds to Al Qaeda elements in Yemen and masterminding operations in complete contradiction to Crown Prince Abdallah’s policy. This policy led to the signing a few months earlier of an agreement settling endemic border disputes. The Yemeni accusations were directed against the Sudairis who exploited their relations with unruly Sunni Yemeni tribal elements sympathetic to bin Ladin to undermine the country’s central authority and gain additional territory from Yemen, especially along the unmarked peripheries of the oil-rich Rub al-Khali desert infested with Al Qaeda supporters.
Crown Prince Abdallah and most other senior Saudi princes are cognizant that in view of the expected continued decline of the kingdom’s economy, coupled with the erosion of popular support for the House of Saud, they cannot afford to alienate America and be considered its “enemy,” despite their determination to preserve, as far as possible, Saudi Arabia’s anachronistic Wahhabi “way of life.” For this purpose, Crown Prince Abdallah has taken steps in recent months to remove the control of the Saudi education system from the ulama and place it under the Education Ministry. Simultaneously, the crown prince endeavors to more closely supervise the activities of his ulama and their different institutions that fan the flames of the inbred Saudi hostility to the West (U.S.), its civilization, and everything Jewish.
However, for his part, Prince Sultan, who at 76 is only a few years younger than Abdallah and is supported by the “Sudairi system,” is desperately fighting to safeguard his position as second in line of succession by opposing Abdallah’s “reforms.” The struggle for power within the Saudi royal house has been accelerated by King Fahd’s rapidly declining health. Consequently, the Sudairis are courting the ulama and even the kingdom’s most conservative and anti-American elements in the hope of winning their favor and support for Prince Sultan’s appointment as crown prince once King Fahd passes away.
For its part, Washington is well aware of the fact that the industrial countries will remain for some time largely dependent on Saudi and Persian Gulf oil exports. For this reason, as well as the need to garner Riyadh’s low-key cooperation for U.S. efforts to overthrow Saddam Hussein’s regime and establish a pax-Americana in the Middle East, Washington has responded favorably to Crown Prince Abdallah’s endeavors to improve relations between Saudi Arabia and America.
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Mordechai Abir is a Fellow of the Jerusalem Center for Public Affairs and Professor (Emeritus) of Islamic and Middle Eastern Studies at the Hebrew University of Jerusalem. His books on Saudi Arabia include Saudi Arabia in the Oil Era. Regime and Elites: Conflict and Collaboration (1988); Saudi Arabia: Government, Society and the Gulf Crisis (1993); and United States-Saudi Arabian Relations and the Arab-Israeli Peace Process (forthcoming).