Running into the sand

Tumbling crude prices have pushed Saudi Arabia to the brink, and now it’s losing friends too

MADAWI AL-RASHEED

Saudi Arabia is an oil country. You already knew that, of course, but have you thought about what it means? You probably only notice the ups and downs of crude prices when filling up a car with petrol. But for two generations of Saudis, the vicissitudes of the oil market are a force that reorders society.

As late as the start of the 1970s, Saudi Arabia was still a poor desert kingdom, largely populated by disparate tribes and other groups who held the weakest of allegiances to the state. But after the 1973 Yom Kippur War, it joined an oil embargo against those countries that had supported Israel. Oil prices quadrupled and a gold rush began, one that transformed everything it touched.

It was only a small minority of Saudis who were suddenly driving Rolls Royces and Cadillacs on the streets of Riyadh, the capital. Yet the change could not be missed. Mud-brick houses were abandoned for Italian-style villas in the mushrooming suburbs of cities like Jeddah. Perfumeries stocked the latest French scents; shops supplanted the old souqs and flea markets; and young men donned sunglasses, one of the small personal comforts that seems to symbolise consumerism and modernity. The recently built Riyadh Water Tower, a blue-and-gold striped funnel shooting into the sky, became a totem of the new affluence.

The small elite who grabbed much of the revenue shored up its position by spreading a little of the spoils around. Before long, almost 70 per cent of Saudi nationals were employed in the cossetted public sector. Meanwhile, much of the real labour was done by the ever-swelling ranks of foreign workers.

Nearly 90 per cent of Saudi Arabia’s GDP is directly or indirectly linked to oil. Its price touches every aspect of day-to-day life and plays a huge part in both domestic politics and foreign relations. So when the price of oil shot down like lubricated lightning amid a great glut in 1986, Saudi society went in reverse. Riyadh’s pristine office blocks were emptied. Half-built developments were put on hold or scrapped. City centres became ghost towns.

It took nearly 20 years for the price of oil to rebound but as recently as 2008, barrels of crude were trading at a high of $147. Then they fell again—till they hovered around $40 for most of this year. They recovered somewhat after an Opec effort in September to force prices up by restricting production, but only modestly— to something around $50, still two-thirds down on a few years ago.

This latest slide has sunk the kingdom into one of its worst-ever slumps, opened up a gaping budget deficit—$98bn in 2015—and is placing it under perhaps unsustainable pressure. In September, for the first time ever, the government cut bonuses and allowances for public sector workers. Can the Saudi state manage a more constructive response to its troubles than the lashing, beheading and stoning for which it is notorious?

The fortunes of any government in its position would be tied to the ebbs and flows of the oil price, but the regime in Riyadh has exacerbated its vulnerability, spending lavishly when it can, and indulging in corruption and displaying a complete lack of accountability at all times. To understand the way in which it operates, and the way that it responds to economic pressure, we need to go back to the very beginning.