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Economic woes threaten Saudi
stability
By Hooman Peimani
Last week, Saudi Arabia's Labor and Social
Affairs Minister Ali Bin Ibrahim al-Namla stated that
approximately one third of his country's workforce,
about 3.2 million people, was unemployed, and
unemployment was increasing.
Unsurprisingly,
reports suggest that the Saudi government is concerned
about the negative impact of such a situation on social
stability. As the Persian Gulf prepares for the
seemingly inevitable American war against Iraq, existing
opposition in the Arab world, including in Saudi Arabia,
to that war and a prevailing resentment among average
Arabs towards American Middle Eastern policy will likely
further politicize the already dissatisfied Saudis.
Such unrest could have long-term dire
consequences on Saudi Arabia's stability. Beside its
political backlash, any major contribution of the Saudi
regime to an American war will further worsen the
country's economy, while at the same time making the
situation more suitable for the expansion of extremist
anti-regime political views in the near future.
The significance of the Saudi minister's
statement on unemployment lay not so much in the fact of
the economic difficulties of his country, but in his
providing a figure revealing the depth of the
difficulties. Contrary to what many people outside the
Persian Gulf might think, Saudi Arabia is no longer the
rich and prosperous country of the last few decades of
the 20th century. In fact, its economic demise began in
the 1990s, for which several factors were responsible.
(Current annual growth is about 1 percent.)
One
factor was the heavy cost of the Gulf War of 1991 for
the Saudi economy. Saudi Arabia paid for a large share
of the operation to force Iraq to withdraw from Kuwait,
estimated at about $60 billion. Another was its large
military order in the wake of the war. Added to the
American pressure, fear of a future Iraqi threat and a
desire to reward the Americans made the Saudi government
sign contracts with American companies to purchase about
$30 billion worth of weapons. While financial
difficulties forced the Saudis to cancel part of the
order, the remainder was large enough to help weaken the
Saudi economy.
Low oil prices in the 1990s was
yet another factor. The sudden significant increases in
prices in late 1990 and early 1991 did not last long as
their main causes were quickly eliminated. They included
the Iraqi occupation of Kuwait, the uncertainty about
Persian Gulf oil supplies, a fear of a prolonged period
of instability in a region containing 60 percent of the
world's proven oil reserves, and the 1991 Gulf War.
Thus, in the war's aftermath, the restoration of
stability in the region removed the concern about a
major long-term interruption in oil supplies, and prices
fell accordingly.
Despite fluctuations in oil
prices throughout the 1990s, there was a significant
decrease on average compared to the 1980s, which
resulted in major reductions in the oil-producing
countries' revenues. In 2001, the latter forced the
members of the Organization of Petroleum Exporting
Countries (OPEC) to agree on production reductions to
stop prices falling, which dropped as low as about $10 a
barrel. While that measure helped increase prices
gradually, certain factors prevented stability at a high
level for a significant period of time to compensate for
a decade of low prices. They included the pressure of
major oil importers, especially the United States, on
OPEC, fear within OPEC of a long-term economic recession
in major economies caused by expensive imported oil,
with a predictable decline in oil demand, and internal
disputes in OPEC.
Finally, Saudi Arabia's
growing population has significantly increased the
government's expenses. The population almost tripled
from 7.3 million in 1975 to 19.6 million in 1999. This
phenomenal growth has created major financial problems
for the single-product Saudi economy, which still makes
oil exports the major source of government revenue,
despite efforts for economic diversification. The result
has been the shelving, postponing or downsizing of many
economic and infrastructure projects. The economic
problems caused by a growing population in the absence
of corresponding economic growth to cover increased
expenses will be even worse as the Saudi population will
grow to about 31.7 million by 2015.
The
authorities are under pressure to create some 800,000
jobs over the next five years. Moreover, Saudi officials
hope that the opening of the economy will facilitate
accession to the World Trade Organization. The drive
towards opening up the economy, as stipulated in the
five-year plan covering the period up to 2005, is partly
aimed at reducing dependence on oil, which constitutes
more than 70 percent of income, 85 percent of exports
and 35 percent of the GDP.
The four mentioned
factors have contributed to the worsening economic
situation. The resulting fewer employment opportunities
and a decline in government-provided services have
contributed to a growing social discontent among Saudis,
the majority of whom are becoming poorer. Added to this
economic source, the Saudi regime itself has functioned
as a source of discontent, being an undemocratic
political system that bans political participation for
its citizens, and it lacks democratic institutions such
as political parties, a parliament and open elections.
Its rigid interpretation and enforcement of Islamic law,
with extensive constraints on social activities and its
denial of basic human rights, such as freedom of speech
and gender, equality have created dissatisfaction among
Saudis.
To this picture, one should add another
major source of dissatisfaction. A decade-long
stationing of the American military in Saudi Arabia has
provoked hostility among an increasing number of Saudis,
not only towards the Americans, but also towards the
Saudi regime, now seem as a puppet state in their eyes.
The Americans' pro-Israeli policy towards the Middle
East and the proposed war against Iraq have increased
hostility towards them in the entire Arab world,
including Saudi Arabia, making the American military
presence in that country even more irritating for the
Saudis.
In such a situation, any Saudi
involvement in the American war against Iraq will only
further erode from its already damaged legitimacy. The
resulting weakened stability will be even more fragile
if the Saudi government makes financial contributions to
such a war in one form or another. Any major
contribution will only further deepen its economic
problems, with predictable destabilizing social
consequences.
If the current downward economic
trend continues, the gradual disappearance of Saudi
Arabia's means of economic growth and prosperity will
further weaken the already damaged social structure on
which the Saudi regime stands. The latter will
predictably be more vulnerable to social discontent. In
the absence of any legal forum for the expression of
dissent and of means for a peaceful change of
government, political extremism advocating violence as
the only realistic means for a fundamental change in the
status quo will become the favorite ideology of
disenchanted Saudis.
As a similar situation
exists in almost all other energy-rich Arab states of
the southern Persian Gulf, the eruption of mass
anti-government movements and/or the emergence of fast
growing extremist groups in Saudi Arabia will most
probably spill over into its equally vulnerable
neighboring states. At which point, oil prices will not
be the only victim of dissent and extremism.
Dr Hooman Peimani works as an
independent consultant with international organizations
in Geneva and does research in international
relations.
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