The Saudis Are Stumbling –
They May Take the
Middle East With Them
America’s leading Sunni ally is proving how
easily hubris, delusion, and old-fashioned
ineptitude can trump even bottomless wealth
Conn Hallinan
Antiwar.com
October 7, 2015
For the past eight decades Saudi Arabia has been careful.
Using its vast oil wealth, it’s quietly spread its ultra-conservative brand
of Islam throughout the Muslim world, secretly undermined secular regimes in
its region, and prudently kept to the shadows while others did the fighting
and dying. It was Saudi money that fueled the Mujahedeen in Afghanistan,
underwrote Saddam Hussein’s invasion of Iran, and bankrolled Islamic
movements and terrorist groups from the Caucasus to the Hindu Kush.
It wasn’t a modest foreign policy, but it was a discreet one.
Today that circumspect diplomacy is in ruins, and the House of Saud looks
more vulnerable than it has since the country was founded in 1926.
Unraveling the reasons for the current train wreck is a study in how easily
hubris, delusion, and old-fashioned ineptness can trump even bottomless
wealth.
Oil Slick
The kingdom’s first stumble was a strategic decision last fall to undermine
competitors by scaling up its oil production and thus lowering the global
price.
They figured that if the price of a barrel of oil dropped from over $100 to
around $80, it would strangle competitors that relied on more expensive
sources and new technologies, including the U.S. fracking industry,
companies exploring the Arctic, and emergent producers like Brazil. That, in
turn, would allow Riyadh to reclaim its shrinking share of the energy
market. There was also the added benefit that lower oil prices would damage
oil-reliant countries that the Saudis didn’t like – including Russia,
Venezuela, Ecuador, and Iran.
In one sense it worked. The American fracking industry is scaling back, the
exploitation of Canada’s tar sands has slowed, and many Arctic drillers have
closed up shop. And indeed, countries like Venezuela, Ecuador, and Russia
have taken serious economic hits.
But it may have worked a little too well, particularly with China’s economic
slowdown reducing demand and further depressing the price – a result that
should have been entirely foreseeable but that the Saudis somehow missed.
The price of oil dropped from $115 a barrel in June 2014 to around $44
today. While it costs less than $10 to produce a barrel of Saudi oil, the
Saudis need a price between $95 and $105 to balance their budget. The
country’s leaders, who figured that oil wouldn’t fall below $80 a barrel –
and then only for a few months – are now burning through their foreign
reserves to make up the difference.
While oil prices will likely rise over the next five years, projections are
that the price per barrel won’t top $65 for the foreseeable future. Saudi
debt is on schedule to rise from 6.7 percent of GDP this year to 17.3
percent next year, and its 2015 budget deficit is $130 billion.
The country is now spending $10 billion a month in foreign exchange reserves
to pay the bills and has been forced to borrow money on the international
financial market. Recently the International Monetary Fund’s regional
director, Masood Ahmed, warned Riyadh that the country would deplete its
financial reserves in five years unless it drastically cut its budget.
Buying the Peace (While Funding War)
But the kingdom can’t do that.
When the Arab Spring broke out in 2011, Saudi Arabia headed it off by
pumping $130 billion into the economy, raising wages, improving services,
and providing jobs for its growing population. Saudi Arabia has one of the
youngest populations in the Middle East, many of whom are unemployed and
poorly educated. Some 25 percent of the population lives in poverty. Money
keeps the lid on, but – even with the heavy-handed repression that
characterizes Saudi political life – for how long?
Meanwhile they’re racking up bills with ill-advised foreign interventions.
In March, the kingdom intervened in Yemen’s civil conflict, launching an air
war, a naval blockade, and partial ground campaign on the pretense that Iran
was behind one of the war’s factions – a conclusion not even the Americans
agree with.
Again, the Saudis miscalculated, even though one of their major allies,
Pakistan, warned them they were headed for trouble. In part, the kingdom’s
hubris was fed by the illusion that US support would make it a short war.
The Americans are arming the Saudis, supplying them with bombing targets,
backing up the naval blockade, and refueling their warplanes in midair.
But six months down the line the conflict has turned into a stalemate. The
war has killed 5,000 people (including over 500 children), flattened cities,
and alienated much of the local population. It’s also generated a horrendous
food and medical crisis and created opportunities for the Islamic State and
al-Qaeda to seize territory in southern Yemen. Efforts by the UN to
investigate the possibility of war crimes were blocked by Saudi Arabia and
the US
As the Saudis are finding out, war is a very expensive business – a burden
they could meet under normal circumstances, but not when the price of the
kingdom’s only commodity, oil, is plummeting.
Nor is Yemen the only war that the Saudis are involved in. Riyadh, along
with Qatar and the United Arab Emirates, are underwriting many of the groups
trying to overthrow Syrian president Bashar al-Assad. When antigovernment
demonstrations broke out there in 2011, the Saudis – along with the
Americans and the Turks – calculated that Assad could be toppled in a few
months.
But that was magical thinking. As bad as Assad is, a lot of Syrians –
particularly minorities like Shiites, Christians, and Druze – were far more
afraid of the Islamists from al-Qaeda and the Islamic State than they were
of their own government. So the war has dragged on for four years and has
now killed close to 250,000 people.
Once again, the Saudis miscalculated, though in this case they were hardly
alone. The Syrian government turned out to be more resilient than it
appeared. And Riyadh’s bottom line that Assad had to go just ended up
bringing Iran and Russia into the picture, checkmating any direct
intervention by the anti-Assad coalition. Any attempt to establish a no-fly
zone against Assad will now have to confront the Russian air force – not
something that anyone other than certain US presidential aspirants are eager
to do.
The war has also generated a flood of refugees, deeply alarming the European
Union, which finally seems to be listening to Moscow’s point about the
consequences of overthrowing governments without a plan for who takes over.
There’s nothing like millions of refugees headed in your direction to cause
some serious rethinking of strategic goals.
The Saudis goal of isolating Iran, meanwhile, is rapidly collapsing. The
P5+1 – the US, China, Russia, Great Britain, France, and Germany –
successfully completed a nuclear agreement with Tehran, despite every effort
by the Saudis and Israel to torpedo it. And at Moscow’s insistence,
Washington has reversed its opposition to Iran being included in peace talks
around Syria.
Bills Coming Due
Stymied in Syria, mired down in Yemen, and its finances increasingly
fragile, the kingdom also faces internal unrest from its long marginalized
Shia minority in the country’s east and south. To top it off, the Islamic
State has called for the “liberation” of Mecca from the House of Saud and
launched a bombing campaign aimed at the Kingdom’s Shiites.
This fall’s Hajj disaster – a stampede that killed more than 2,100 pilgrims
and provoked anger at the Saudi authorities for their foot dragging on
investigating it – have added to the royal family’s woes. The Saudis claim
just 769 people were killed, a figure that no other country in the world
accepts. And there are persistent rumors that the deadly stampede was caused
when police blocked off an area in order to allow high-ranking Saudis
special access to the holy sites.
Some of these missteps can be laid at the feet of the new king, Salman bin
Abdulaziz Al Saud, and of a younger, more aggressive generation of Saudis
he’s appointed to key positions. But Saudi Arabia’s troubles are also a
reflection of a Middle East in transition. Exactly where it’s headed is by
no means clear, but change is in the wind.
Iran is breaking out of its isolation. With its large, well-educated
population, strong industrial base, and plentiful energy resources, it’s
poised to play a major regional, if not international, role. Turkey is in
the midst of a political upheaval, and there’s growing opposition among
Turks to Ankara’s meddling in the Syrian civil war.
Saudi Arabia, on the other hand, is impaled on its own policies, both
foreign and domestic. “The expensive social contract between the Royal
family and Saudi citizens will get more difficult, and eventually impossible
to sustain if oil prices don’t recover,” Meghan L. O’Sullivan, director of
the Geopolitics of Energy project at Harvard, told the New York Times.
However, the House of Saud has little choice but to keep pumping oil to pay
for its wars and keep the internal peace. Yet more production drives down
prices even further. And once the sanctions come off Iran, the oil glut will
become worse.
While it’s still immensely wealthy, there are lots of bills coming due. It’s
not clear the kingdom has the capital or the ability to meet them.
Foreign Policy In Focus columnist Conn Hallinan can be read at
www.dispatchesfromtheedgeblog.
www.middleempireseries.
Reprinted with permission from Foreign Policy In Focus.
