January 11, 2016
Jen Gerson: Saudi Arabia is like Mad Max before the fall … and the fall may have arrived
By Jen Gerson
What happens to Saudi Arabia when a barrel of oil drops to $35 from $120?
It's hard to pick a favourite between a country that executes 47 alleged terrorists - including political prisoners - and a rogue state that actively supports terrorist brigades across the Middle East. But here we are.
Saudi Arabia recently conducted its largest mass execution in 30 years. Among the most notable fatalities was Nimr Baqir al-Nimr, a Shia who has oft been critical of the Saudi government. Never missing an opportunity stress its own importance in the region, protests soon began in Iran, where Saudi diplomatic posts were attacked. The two countries broke off diplomatic ties; several other Middle Eastern countries followed Saudi Arabia's lead, isolating Iran. Iran then accused Saudi Arabia of attacking its embassy in Yemen. It's the worst diplomatic crisis the Middle East has seen in … a few weeks, perhaps.
Saudi Arabia, long an uncomfortable Western ally, is on the verge of an economic shift that may result in a more stable nation and an emerging regional hegemon. Or - as its more frantic critics worry - the country is on the cusp of protracted decline and eventual state failure. These mass beheadings and political spit matches with Iran are worrying omens.
Or - as its more frantic critics worry - the country is on the cusp of protracted decline and eventual state failure
I lived in nearby Abu Dhabi for several years. There issues there are similar. I was there when the oil price was still booming; glass condos were growing along the Sheikh Zayed highway faster than tulips in camel poop. But even then, the whole place had the vibe of a Mad Max movie before the fall; the growth was too frantic, too quick. The grand portraits of the regional sheikhs had an Ozymandias-like air. These are ghost economies sustained on oil and debt, desperately attempting to diversify before the wells run dry. Their comparative political stability is rooted in that same system - ethnic nationals are rewarded for their political quiescence with land, marriage bonuses, debt relief, over-paid public-sector salaries, housing and subsidized fuel, food and consumer goods. Very few citizens work in the private sector - the public sector is simply too lucrative. As a result, these states are over-reliant on migratory labour to fill everything from construction to journalism jobs.
One shouldn't underestimate the hold of charismatic leadership, tradition, nor religion, of course. But it's hard to lead a revolution from your Porsche and it's no coincidence that Saudi Arabia offered bonuses and bumped up subsidies in the midst of the Arab Spring.
So what happens to this system when a barrel of oil drops to $35 from $120? In a bid to strangle emerging oil producers in the U.S. and rain on post-sanctions Iran's parade, Saudi Arabia jacked up its own production, prompting the oil drop that is the cause of so much heartache in Alberta of late.
The irony is that Saudi Arabia itself may yet be the nation to suffer the most. Its deficits are now among the largest in the world and it's burning through its vaunted sovereign wealth fund to finance the gap. In a recent Economist interview, Saudi Arabia's deputy crown prince, Muhammad bin Salman, discussed reducing subsidies, privatizing state assets and - egad - introducing taxes. Salman even conceded that the kingdom is considering an IPO for Aramco, the most wealthy and secretive oil company in the world.
When asked whether Saudi Arabia was about to face a Thatcherite revolution, Salman responded: "Most certainly."
And this shift is more than just economic. The Crown Prince himself is the vanguard of a generational handover; power is passing from the sons to the grandsons of Ibn Saud. Salman is of an age educated in liberal economic values, although still rooted in conservative Islamic traditions. This generational shift is reflected in the population as well - 70 per cent of Saudi Arabia is now under the age of 30.
Saudi Arabia's increasingly robust and violent foreign policy - particularly in the face of its ancient enmity with Iran - is also a reflection of this evolution. Recent fighting with Houthi rebels in Yemen, for example, is largely considered a proxy war between the two states. Expect these rivalries to grow more heated and public as the leviathan of the United States retreats from the Middle East. Saudi Arabia isn't buying those contentious Canadian light armoured vehicles for show.
The country is going to have to dismantle the most lavish aspects of its comfortable welfare state just as an enormous wave of young people comes of age. Its economy and, more importantly, its culture simply may not be able to handle the reforms to come. Whether the future of the Kingdom is one of political maturity or outright rebellion is the question. But there are early signs of discontent, with reports of letters circulating among the sprawling royal family calling for overthrow of the reigning monarch.
All anyone can predict at this point is that Saudi Arabia will be one of the canaries in the coal mine in the order of the world to come. The Liberals may do well to reconsider shipping weapons there for a few years.
National Post
jgerson@nationalpost.com
Twitter.com/JenGerson
