A threat to the House of Saud could disrupt flow of oil to West
To quell dissent and meet investments Saudi Arabia need oil to be $25 a barrel
WHAT IS the greatest threat to the security of the West? Contrary
to what you might believe, the enemy is not hiding in the rubble of
Afghanistan. Instead, it lives in airconditioned comfort in Riyadh.
We are not speaking of Osama bin Laden. America’s public enemy
number one is most unwelcome in the land of his birth. The biggest
risk facing the West is the ruling class of Saudi Arabia and its ability
to maintain the daily flow of 7.5 million barrels of crude oil, a tenth
of the world’s entire consumption every 24 hours.
At first glance, the risks of disruption to oil supply look benign. US
missiles are targeting not Iraqi bunkers, but caves in the Pamirs, and
US aircraft are heading for old Soviet airbases in Uzbekistan, and
not the Saudi bases in Dhahran.
Tankers are still loading in the Gulf, President Saddam Hussein of
Iraq is saying little and even the Israelis and Palestinians are
behaving a bit better. As fear of Near East conflict recedes, the oil
price tumbles — a silver lining to the clouds of belligerence. If it
must be war, better this war than the other.
Unfortunately, the other is not precluded. The embarrassed Saudi
response to America’s global call to arms would be humorous if it
were not alarming. Condemnation of terrorism was easy, but use of
bases for airstrikes? It appears that F-16s, so welcome in 1991
when Iraqi troops were squatting on the border, are not required, for
the time being.
The Saud dynasty, rulers since the country’s creation in 1932, are
embarrassed because they know they face a more dangerous foe
than Iraqi missiles. The enemy lies within. The threat is a population
growing at a prodigious rate and concern that the Saudi economy
will be unable to supply the jobs and lifestyle to which young Saudis
are accustomed.
Saudia Arabia is a small nation, at some 22 million, but is one of the
world’s fastest-growing, at a rate of more than 4 per cent per
annum. Half of all Saudis are less than 18 years of age and within
five years a fifth of the population will be leaving home with
nowhere to go and not much future to look forward to. Astonishing
as it may seem, per capita income in Saudi Arabia has been in
decline, in real terms, since the 1980s.
In a recent paper for the Centre for Strategic and International
Studies, Anthony Cordesman describes the failure of the Arab and
Islamic world to face demographic problems and the issue of birth
control as “an act of continuing intellectual cowardice and one of
the great disgraces of the 20th century.” He writes: “Even today,
most educated Saudi women face a dead end and most Saudi young
men graduate into purposeless jobs that offer little real future or
productive value to the economy.”
This is fertile territory for resentment and the breeding of minds
highly receptive to religious or political propaganda. It cannot be
entirely accidental that a number of the terrorists involved in the
September 11 attacks are believed to have been of Saudi origin. Nor
can it be coincidence that the man accused of plotting the attacks
was a member of Saudi Arabia’s wealthy (but not royal) class.
Once, allegedly, a drifting playboy in Beirut, he found a purpose to
his life by declaring war on the “corrupt” society that made him.
But what of the oil? In the past, the Saudi royals have kept a lid on
dissent with dollars — buying the silence of the masses with free
healthcare and education. Trouble, in the form of corrupt princes or
political dissenters, has simply been exported to London, New York,
Paris or even Afghanistan.
Saudi Arabia’s oil reserves are still hugely important. The country is
the largest Opec producer, but more important than its current
output is its potential. Producing 7.7 million barrels per day, the
country could increase production, within a few months, by more
than a third. With most of the non-Opec world producing every
barrel it can suck out of the ground, the Saudi Royal Family has its
hands on a tap that controls more than half the world’s spare
capacity.
Unfortunately, its finances are not looking that good. The days of
the huge petrodollar surpluses are over. The country is servicing a
massive debt burden, representing 105 per cent of its gross domestic
product, at a cost of $7.6 billion (£5.2 billion) per year.
Recent high oil prices have provided some relief, transforming a $12
billion budget deficit in 1998 into positive territory in 2000.
According to the Centre for Global Energy Studies, Saudi Arabia
needs the $25 oil price, which, conveniently, represents the middle
of the range in Opec’s target of$22 to $28 for its “basket” of crude
oils.
But now, Saudi Arabia faces a “double whammy”. After a series of
cuts in Opec quotas, Saudi production is down 3 per cent and the oil
price is down 15 per cent.
In order to pay for schools, hospitals, roads, the cost of the 15,000
royal princes and the military, the country needs a $21 oil price. If it
is to invest for the future, it needs another $3 per barrel; to pay back
some of the debt mountain, it needs $25.
Saudi oil typically sells at a discount to Brent blend. With Brent
trading at about $21.50, the kingdom is probably selling its crude at
little more than $20 per barrel. In other words, at today’s price, it is
not even financing current expenditure.
What are the Saudis to do? Were they to push for another cut in
supply, they would risk angering the US at a time when their great
protector is on the warpath. Moreover, high energy prices could
push a teetering world economy into full-blown recession and falling
demand for oil.
But to do nothing risks an oil price heading for the teens. It means
belt-tightening and cancelled projects at a time when the country
desperately needs to build a non-oil economy. Saudi Arabia must
invest to provide jobs, keep a lid on dissent and prevent a new
generation of disaffected remittance men from joining the ranks of
“jihad”.
This is not a nation as the term is normally understood. Saudi Arabia
is, literally, the Arabia of the Sauds. It is a feudal estate, owned by a
family. In return for loyalty, Saudi subjects pay no taxes, enjoy free
social services and benefit from subsidised water and electricity.
It is a social contract that has had its day, Cordesman reckons. The
non-oil sector of Saudi Arabia is still pitifully small. After several
decades of petrodollar extravagance, non-oil activity generates only
$11 billion for the state, less than during the boom years of the early
1980s. Without developing a modern economy, Cordesman says, the
kingdom will move from oil wealth to oil poverty.
A glance at the social and political turmoil in some of the oil-poverty
states, such as Nigeria or Indonesia, suggests that Saudi Arabia may
not face a peaceful decline into genteel poverty, and nor should we
expect the 15,000 princes to go willingly back to their tents.
Moreover, Saudi Arabia faces a particularly difficult problem in
dealing with the force of religion.
The Wahhabi movement, which dominates the country, is a puritan
sect of Sunni Islam that enforces a literal interpretation of the
Koran. The worldly Sauds made their peace with the Wahhabi by
dividing responsibilities. As a result, the kings in Riyadh control the
“public” purse strings, but religious authorities and the religious
police, patrolling the streets and directing less-than-faithful into the
nearest mosque, exert a powerful influence over culture, education
and private matters.
Puritan rage over the corruption of rulers will have a particular
resonance to students of British history. There is no evidence that
the Saudi “puritans” are planning to overthrow the ruling family.
Resentment bubbles against princely excess and venality, but most
of the dissidents have fled abroad. For the moment, Crown Prince
Abdullah is unlikely to suffer the fate of Charles I.
But the man in the cave in Afghanistan has exposed a terrible
weakness. Even if his followers can be blamed for the attack on
America, it is clear that his real target is nearer home. Obviously a
man of some intelligence, he cannot truly believe he can bring down
the American empire.
He may, however, believe that it is possible to start a war and force
the divided and conflicted people of the Middle East to take sides. If
that is his aim, the dynasty of the Sauds has much to fear and so do
their protectors in the West. |
