However, this article, based on a lengthy interview with Prince Mohammed bin Salman, Saudi Arabia’s 31 year old Deputy Crown Prince and Defense Minister, provides an unusually candid look at the Kingdom’s economic problems:
“Saudi Arabia’s economy will probably expand 1.5 percent in 2016, the slowest pace since the global financial crisis, according to a Bloomberg survey, as government spending—the engine that powers the economy—declines for the first time in more than a decade. The state still employs two-thirds of Saudi workers, while foreigners account for nearly 80 percent of the private-sector payroll.”
“During the oil boom from 2010 to 2014, Saudi spending went berserk. Prior requirements that the king approve all contracts over 100 million riyals ($26.7 million) got looser and looser—first to 200 million, then to 300 million, then to 500 million, and then, Al-Sheikh says, the government suspended the rule altogether.”
“there was roughly between 80 to 100 billion dollars of inefficient spending” every year, about a quarter of the entire Saudi budget.”
“Last year there was near-panic among the prince’s advisers as they discovered Saudi Arabia was burning through its foreign reserves faster than anyone knew, with insolvency only two years away. Plummeting oil revenue had resulted in an almost $200 billion budget shortfall—a preview of a future in which the Saudis’ only viable export can no longer pay the bills, whether because of shale oil flooding the market or climate change policies. Historically, the kingdom has relied on the petroleum sector for 90 percent of the state budget, almost all its export earnings, and more than half its gross domestic product.”
There is nothing really substantively new in this article. It is the latest in the war of words between the Saudis and Iran. The rhetorical battle has escalated recently because of the start of the Hajj season. At last year’s Hajj 769 pilgrims were killed in a stampede. Iran blames the Saudis for the catastrophe and claims the al Saud are unfit to oversee the pilgrimage. The Saudis, on the other hand, claim Iran exploits the religious event for political purposes.
The article is notable however because it is the second time Iran’s Foreign Minister has taken to the op-ed page of the New York Times to chastise the Saudis. The first time was back in January when the Tehran and Riyadh fought a rhetorical duel on the editorial pages of the American paper/website.
“The borders of the Islamic State’s “caliphate” are shrinking fast. The group’s strongholds in Iraq and Syria are collapsing one by one. The U.S.-led war has reached a point where questions are being raised about what comes next.
So far, the answer seems likely to be: more war.”
This article probably oversimplifies things in the sense that it suggests that these wars are discrete events. Rather, the conflicts being played out in Syria are the product of long submerged tensions that were unleashed first by the invasion of Iraq in 2003 and then the Arab Spring. Once the state system began to collapse in 2010, they were bound to come to the fore. The article is effective though, in the way it identifies the various schisms and how they have been effected by recent events.
The new Saudi King, Salman bin Abdulaziz Al Saud, and his son, Deputy Crown Prince Mohammed bin Salman have drawn up a plan to reform the Saudi economy and wean the country away from its reliance on oil as the main source of income. The details of the plan are covered in this Bloomberg article:
Economic diversification is not a new idea for the Saudis, political scientists, economists and even Saudi politicians have been talking about it for years. For an economic argument for diversification and neo-liberal reform, see:
The problem has always been that economic reform in Saudi Arabia could be politically destabilizing. Oil is not just the backbone of the Saudi economy, it is one of, if not the most important political pillars of the state. Oil money (referred to in the poli-sci literature as rents) provides approximately 95% of government revenue. This not only provides money for services etc… it provides the regime with a large degree of economic and therefore political independence from society. The al Saudi do not have to tax Saudi citizens. Instead they redistribute money back to society in the form of generous social benefits and patronage spending. While it may be an oversimplification to say no representation without taxation, the re-distributive nature of the Saudi economy reduces a great deal of pressure for democratization. Not only does the government in effect pay it citizens, oil wealth has been used to build a new middle class beholden to the regime for government handouts. The use of foreign workers also means that organized labor has little or no power.
The Saudi political system cannot be reduced to oil rents, but economic reforms are extremely risky. Even if everything works as planned and the result is economic growth, diversification could very well mean more independence for the middle class and labor. Although the al Saud deny it, reform may also lead to taxation. As the country becomes more economically liberal, there may also be calls for social and cultural liberalization, which would threaten one of the regime’s other pillars of political support, its relationship with the conservative religious establishment.
If King Salman actually follows through with his economic plan it will lead to new political dynamics within the regime, dynamics that the institutions of the Saudi state may have a hard time coping with.
This article looks at the seemingly trivial dispute over the term “Persian Gulf”. It is no small mater on either the Iranian or the Arab side. As the article points out, Americans frequently use the term Gulf to avoid controversy. I can say from my own experience, that usually does not work. I referred to ‘the Gulf’ once at a talk in Tehran and I was corrected in no uncertain terms, by three separate members of the audience. I have seen a couple of other academics at conferences in North America meet the same fate.
“Analysts say the name can be a source of friction even in diplomatic encounters.
“It’s deeply emotional; it’s not simply semantic,” said Frederic Wehrey, an expert on gulf politics at the Carnegie Endowment for International Peace.
Mr. Wehrey recalled meetings that degenerated into shouting matches over the name. At the heart of the matter, he said, was “a geostrategic dispute about ownership of the gulf.”
Kenneth M. Pollack, a fellow at the Brookings Institution who served as the Persian Gulf affairs director at the National Security Council, said that the terms used by American officials had become more nuanced, and that more officials now say Arabian Gulf or simply “the gulf.”
The terminology shifted along with geopolitics, he said. While the close American-Saudi relationship dates to World War II, ties deepened between the United States and other Gulf Arab states after the 1979 Islamic Revolution in Iran, and even more so with the 1991 war in Iraq.
With the Iranian-Saudi rivalry heating up, the foreign ministers of both countries have published editorials in the New York Times condemning the other state. Perhaps the most interesting thing about the editorials is that they are in the times. Both states clearly are playing to the US. The Saudis want to stop the rapprochement between Washington and Tehran. Given that the nuclear agreement is now in effect, and the new relationship survived Iranian ballistic missile tests, the seizure of American naval vessel that “drifted” into Iranian waters, and the imposition of new American sanctions, it would appear that the Saudis have their work cut out for them.
Can Iran Change?
By ADEL BIN AHMED AL-JUBEIRJAN. 19, 2016
“THE world is watching Iran for signs of change, hoping it will evolve from a rogue revolutionary state into a respectable member of the international community. But Iran, rather than confronting the isolation it has created for itself, opts to obscure its dangerous sectarian and expansionist policies, as well as its support for terrorism, by leveling unsubstantiated charges against the Kingdom of Saudi Arabia.
It is important to understand why Saudi Arabia and its Gulf allies are committed to resisting Iranian expansion and responding forcefully to Iran’s acts of aggression.”
Mohammad Javad Zarif: Saudi Arabia’s Reckless Extremism
By MOHAMMAD JAVAD ZARIFJAN. 10, 2016
“Saudi Arabia seems to fear that the removal of the smoke screen of the nuclear issue will expose the real global threat: its active sponsorship of violent extremism. The barbarism is clear. At home, state executioners sever heads with swords, as in the recent execution of 47 prisoners in one day, including Sheikh Nimr al-Nimr, a respected religious scholar who devoted his life to promoting nonviolence and civil rights. Abroad, masked men sever heads with knives.
Let us not forget that the perpetrators of many acts of terror, from the horrors of Sept. 11 to the shooting in San Bernardino and other episodes of extremist carnage in between, as well as nearly all members of extremist groups like Al Qaeda and the Nusra Front, have been either Saudi nationals or brainwashed by petrodollar-financed demagogues who have promoted anti-Islamic messages of hatred and sectarianism for decades.”
Although Iran is not without fault, the sudden crisis in Iranian Saudi relations is due to the Saudis escalating the rivalry by executing Shi’a cleric Nimir al-Nimir. But why? According to Marc Lynch’s post at the Monkey Cage, a blog maintained by the Washington Post, the reasons are complex. The Saudis are feeling increasing vulnerable, the conflict in Yemen is dragging on, Tehran’s nuclear deal with the US is allowing Iran to escape its regional isolation, and the Saudis see a leadership void in the Sunni Arab world which they wish to fill. Will this lead to an Iranian-Saudi war? Probably not. But as Lynch argues: the mobilization of sectarian passions are part of the standard playbook for Riyadh when faced with regional and domestic challenges. But the new forces unleashed by the Arab uprising, from state weakness and civil wars to potent new media platforms, make this sectarian game much more dangerous than in the past. It will be far more difficult to deescalate these sectarian passions than it has been to inflame them.”