Saudi Arabia has been a major player in Middle East politics. It backed the 2013 overthrow of the Moslem Brotherhood in Egypt, since the example of an elected government of a major country next door was not welcome to the Saudi family autocracy. It has suppressed Shia-based protests in Bahrain and Yemen and has sought to spread its version of Islam around the world, with the funding of Wahhabi schools/madrasas, while it is well known that Saudi plutocrats have funded ISIS/Daesh in Syria and Iraq. In the economic sphere, it plays the role of being a major low-cost ‘swing’ producer of oil. Its 2014 decision to continue oil production was a factor (apart from world economic stagnation) leading to the slump in oil prices, its logic being to undercut the growth of rival energy production, especially shale oil and gas in North America, as well as more costly oil production elsewhere, including in Russia and Iran. Accumulated Saudi oil wealth remains huge, but its income is now diminishing, leading to record public spending deficits and the reduction of its bank balances overseas.
In the early 20th century, Ibn Saud’s political skills and military strategy outmanoeuvred his opponents, helping him extend his power from his initial base in the eastern Najd region and to rule over the Najd by 1921. By 1926, he had also conquered the western Hijaz region, including Mecca and Medina. In 1932, these regions were formally put under Ibn Saud’s rule, to form the Kingdom of Saudi Arabia. The late-1930s discovery of oil in Saudi Arabia changed many things, and brought the US into the equation as well as providing the Saudis with untold wealth. A review of these developments helps show that the Saudi regime is more transitory than it might otherwise look. Far from being a solidly established, and immovable, reactionary force in the region, and for all the appearance of power, the Saudi edifice is on shaky ground.
Regional economics, politics and the major powers
In the early 20th century, the Middle East region was dominated mainly by the Ottoman Empire (Turkey), with the British, the French and the Russians also having a look in. Russia’s defeat in war by Japan in 1905 and its revolution in that year put them out of the game, but the British were still concerned about potential Russian interference in their plans. Britain’s focus in this region was mainly on its commercial and colonial empire, defended by the British navy, especially in the trade with India. This made Egypt (the Suez Canal), the Red Sea and the Persian Gulf critical areas. In the first decade or so of the 20th century, Britain was not much bothered with the Arabian interior, seeing it as a desert full of trouble rather than profit. Instead it focused on doing protection deals with coastal sheikdoms such as Kuwait, Bahrain, Oman, etc. Britain’s strategic terms were: ‘we protect you, and you make no agreements with anyone else unless we say so’. France had far less of a role in this region, although it had built up a presence in Syria and Lebanon. Instead, until World War 1, the Ottoman Empire was the main ruler, although its governmental power was fragile. The Sublime Porte, the central government in Istanbul, was in charge of the Empire, taking allegiance and collecting taxes. But in the case of the Arabian peninsular this usually meant paying off local rulers, including Ibn Saud, to prevent political unrest. It is unlikely the Ottomans made any money out of this part of its Empire, although it gained prestige from being in charge of Mecca, the central location for pilgrims and the religious centre of its own Islamic rule.
When the Ottomans made the mistake of backing the loser in World War One, Germany, the victors dismembered what remained of their fragile Empire after 1918. The beneficiaries were Britain and France, largely based on the infamous Sykes-Picot Agreement in 1916, which was struck even before the war was over. As a sign of imperial priorities, France was at least as concerned about its colonial possessions as it was about the fact that it had been invaded by Germany!
The Hijaz and the Najd – the western and eastern areas, respectively, of what became most of Saudi Arabia’s territory – were not really part of this imperial land grab. France had had little or no influence there before, and did not do much to get it later, while Britain was not interested, except for the Red Sea and Persian Gulf coasts, an important route to India, and Palestine, the hinterland to the Suez Canal in Egypt. Britain backed any locals who would do its wishes. After war broke out, the main British objective was to oppose the Ottomans, and this meant backing rival forces, Hussein, the Sharif of Mecca and also his opponent, Ibn Saud. Britain could not afford to allocate many troops or to get heavily involved in struggles in Arabia’s interior. Hence, Lawrence ‘of Arabia’, a British intelligence officer, had the role of organising the Syrian-based support for the Arab revolt against the Ottomans. Lawrence deceived the Arabs about prospects for independence, underplaying the role of Britain, by using Hussein as a figurehead (however, he did not know until later of the Sykes-Picot Agreement to hand Syria over to the French). Meanwhile, the British supplied both Hussein and Ibn Saud with weapons and money to achieve these aims.
Sharif Hussein had ambitions for rule over more than just the Hijaz, including Mecca and Medina. Prompted by promises of British support, he played a key role in the start of the Arab revolt against the Ottomans in 1916 and soon declared himself ‘King of All Arabs’. This presumption annoyed the British, who were looking for widespread Arab support against the Ottomans. Hussein could be a useful figurehead, but did not have sufficient authority over and loyal support from rival groups as Ottoman power began to crumble. Above all, the declaration only served to increase Ibn Saud’s opposition to Hussein. Unfortunately for Hussein, Ibn Saud was a much smarter operator in the region, both politically and militarily, and by 1926 had consolidated his power in Hijaz as well as the Najd.
The British did not want to intervene in this battle directly, posing it as a religious affair outside their political concerns. However, the British were happy to sideline Hussein and to support Ibn Saud. Hussein was less acceptable to Moslems from the Indian colony than Ibn Saud, and he had also shown an unforgivably obstructive attitude by refusing to sign Anglo-Hijaz treaty in 1921. That treaty would have bound Hussein to accept the terms of the mandate Britain had secured from the League of Nations regarding Palestine, one that greatly restricted potential Arab independence and also allowed for the setting up within Palestine of a ‘national home for the Jewish people’. After being defeated by Ibn Saud, Hussein abdicated in 1924 and was shipped off by the British into exile in Cyprus, a British colony, then Jordan. The Palestine issue was not among Ibn Saud’s concerns at that time, given that he was focused on establishing his rule in the Arabian peninsular.
In the immediate post-war years, two of Hussein’s sons were nevertheless useful for the British, even if their father’s imperial value had declined. Faisal, the youngest and most able, was first sent to Syria as King. But the French were as suspicious of a UK ally as they were of Arab nationalism and expelled Faisal after the Franco-Syrian war in 1920. France wanted to make sure it would be in control of Syria and Lebanon after being given the mandate for them by the League of Nations. In 1921, the British decided to install Faisal as King in its own mandated area of Iraq instead, based on a rigged plebiscite showing that this person, previously unknown to the Iraqis, had 96% support! Hussein’s older son, the incompetent Abdullah, was trickier to deal with. For him, the British invented a new ‘state’ – Transjordania, later Jordan – in the eastern part of mandated Palestine, and warned Ibn Saud to stay clear of seizing any Jordanian territory.
These changing power relationships and regional turmoil gave Ibn Saud an unusual degree of freedom. He was able to build up a Wahhabi military force loyal to him, the Ikhwan, based upon his family’s previous links with this version of Islam. This force played a key role in seizing Hijaz in 1924. Later, Ibn Saud took action to disband the zealous and brutal Ikhwan, and also made efforts to settle the tribal groupings in the Najd and elsewhere, tribes whose economic modus operandi had been largely dependent upon robbing, or getting protection money from, the many pilgrims en route to Mecca. Ibn Saud’s plans very much depended upon him getting financial subsidies from outside powers, formerly the Ottomans and then the British. After 1916, he got some £5,000 per month or more, a considerable sum, since that was when the purchasing power of one pound sterling was more than a little higher than it is today. Ibn Saud was getting up to £10,000 per month from Britain in 1919. This dependency was based upon the limited economy of the region, which had little agricultural potential and no industry.
US interest and the Saudi regime based on oil
It was the discovery of oil that changed everything for Saudi Arabia. From being a cash-strapped political and military leader inspired by his own dynasty, one who was always running short of funds as he bought loyalty, oil revenues made Ibn Saud – and the favoured ruling elites – fabulously wealthy. However, this was a slow process and one that, as with the earlier foundation of the Kingdom of Saudi Arabia, evolved in the context of rivalries between imperial powers.
In the 1920s, the US produced the bulk of world oil, accounting for just over 70% of total production. This gave the US government little incentive to seek alternative sources of oil outside its territory. Britain had already focused on oil since it had switched the power source of the Royal Navy from coal to oil, but it had by then secured large-scale oil supplies from Iran. When oil was discovered in Bahrain in 1932, however, this led US oil company explorers to surmise that Saudi Arabia might also be a potential source of supply. Ibn Saud was happy to choose a company from the US to do the exploration, since he had more suspicion of French and British colonial designs in the region. In May 1933, his finance minister signed a deal with Standard Oil of California to do the prospecting in the eastern half of Saudi Arabia. At the time, this was simply another means for Ibn Saud to get some revenues. If the Americans were dumb enough, and rich enough, to pay for exploration rights when there was far from any certainty that oil would be found, that was a good bet according to his previous economic experience. Socal paid an upfront £50,000 and a retainer of £5,000 per annum, with an agreement to pay another £100,000 on any discovery and four shillings per ton of oil actually produced.
This sterling denomination of the initial contract amounts (four shillings was 0.2 pounds) indicated that the UK was the major economic power in the region at the time, and the one that had the closest links with the Saudis. US companies had been restricted from other sources of supply in the Middle East (apart from Bahrain) by cartel arrangements of the Turkish (then Iraq) Petroleum Company, a consortium mainly owned by the British-run Anglo-Persian Oil Company (later BP) and Royal Dutch Shell (Anglo-Dutch), with the French Compagnie Francaises des Petroles demanding Germany’s former interests. Only later, from 1928, was a group of US companies admitted to the consortium. However, all those arrangements were to change in the following decade or so, in favour of the Saudi Arabia and the US, including a switch of currency payments into US dollars and a dramatic boost in Saudi oil production. Saudi Arabia’s share of world oil production rose from zero in 1938 to 5.6% in 1950, not far behind Iran, while the US share had dropped to 56%.
Several changes had occurred in imperial calculations from the early 1940s. World War Two had brought home to all countries the importance of access to oil supplies for military strategy. It was an important feature of Germany’s focus on moving into Eastern Europe, for example. The US had also become a net importer of oil in the early 1940s, after having previously been self-sufficient. As a result, the US government got more directly involved in Saudi Arabia, although it only established an embassy there in 1942. The US government felt that it needed safe supplies of oil in case western hemisphere output (mainly US and Venezuelan) diminished or was insufficient. For the US, the Saudi alternative was also important as a power lever against rival countries, and it especially wanted to prevent the UK from monopolising Middle Eastern oil supplies. Saudi Arabia was also less open to influence from the Soviet Union, so it seemed, with a Wahhabi-based religious dynastic state being at the other end of the political spectrum from the Communist atheists. The Wahhabis even despised, and often murdered, fellow Moslems, if they were not the right kind of Moslem. The US strategic alliance with Saudi Arabia was a union of corporate and national US interests that has held for a long time, although it may now be coming under pressure.
In economic terms, while Saudi Arabia’s oil was high in sulphur content, so less valuable per barrel than Iran’s or that available in Texas or the UK’s North Sea, it was much cheaper to extract, so offsetting the extra processing cost. This made it very profitable for the US oil companies that became Aramco (the Arabian and American Oil Corporation), especially since they gained a tax break from the US government on their foreign profits. It was also a boon for the Saudis, although they, like other commodity producing countries in the imperialist world economy, found that they were not getting perhaps all that they might from the production taking place on their territory.
It took initiatives from other oil producing countries to encourage the Saudis to get a better deal for their oil from the major corporations in the 1960s and afterwards. By the early 1970s, the Saudis also began to take over shares in Aramco, eventually buying them out, and the company was renamed as Saudi Aramco in 1980. However, Aramco’s US-based partners continued to operate the production facilities.
The group of oil producing countries, OPEC, hiked the price of oil from the early 1970s, and this also boosted Saudi revenues. The price hike was prompted largely by oil shortages and the falling purchasing power of what had for a very long time been stable, nominal US dollar oil prices, especially as the value of the dollar fell significantly on foreign exchanges. However, the move was also in the context of the Arab-Israeli war in 1973, in which Arab countries imposed an oil embargo on Israel-supporting western powers. Between 1950 and 1969, a benchmark US oil price had been close to $2.5-3.0 per barrel (with Saudi crude at less than $2), so the rise to $10 by 1974 and $40 by 1980 was a big shock for the world economy – and a big positive for US oil corporations and Saudi finances. Saudi government oil revenues rose from less than $2 billion in 1970 to around $85 billion in 1980, helped also by a near-tripling of oil output.
But now there are Saudi economic and political problems
In 2014, Saudi Arabia had around a sixth of the world's proven oil reserves and was by far the largest producer (one-eighth of the world total) and exporter. The petroleum sector accounts for four-fifths of the government’s budget revenues, nearly half of GDP, and 90% of export earnings. However, the extravagant oil price levels of more than $100 per barrel in 2014 are no more. Such prices had encouraged high cost shale oil and gas production, especially in the US, and also a higher output of oil from other producing countries looking for more revenues. The high price levels were also an economic pressure on importing countries, and eventually depressed world demand, adding to the renewed stagnation of the world economy.
However, the fall in prices did not stop Saudi Arabia maintaining oil output, rather than curbing output to help support oil prices as it had done on previous occasions. The new Saudi logic was to discourage the extra, higher-cost suppliers and to maintain its market share. But its problem now is that it has embarked upon big expenditures in recent years – including promoting the coup against the Moslem Brotherhood in Egypt, putting down rebellions in Yemen and Bahrain, and funding its own version of Islamic politics in many other countries, not least in Syria and Iraq. Given the already generous funding of social programmes to buy political stability, this has led to a huge deficit in Saudi Arabia’s public finances of close to 20% of GDP in 2015.
This means that the Saudi government faces very big economic pressures, ones that have only strengthened its repressive instincts. However, while they retain huge wealth, including some $630bn in foreign exchange reserves (although that is down from a peak of $745bn in 2014), their fragile social basis is shown in the facts that expatriates do half the jobs in the country and, with half the population under 25, youth unemployment is 30%. Given their upbringing in this rentier state, many Saudis view ‘ordinary’ jobs as beneath them, and around 8 million of the country’s 27 million population are non-nationals. The economic reality shock to come as the limits of oil wealth show themselves is liable to result in a social and political crisis. This is one reason why, in what came as a shock to the financial markets when it was announced last week, Saudi Arabia is now thinking of selling some shares in its prized Saudi Aramco to raise funds.
A longstanding problem for the Saudi state arises from its sectarian religious outlook. The Wahhabi version of Islam has been a means by which the ruling family has controlled society and terrorised opponents, especially Shia Moslems who make up somewhere between 10-15% of Saudi Arabia’s population. However, there is a majority Shia Moslem population based in the Eastern Province, the location of most of its oil production. The Shia, together with many migrant labourers, do most of the work there.
Saudi strategic trouble
It may be thought that huge Saudi wealth will be enough to shelter the regime from problems. After all, extravagant deals in weapons and other items with the US, UK and France do buy it support. The US also has a number of important military bases in Saudi Arabia. The UK’s continuing links were shown when it halted a Serious Fraud office inquiry into bribery and the Al-Yamamah deal with British defence companies, and when it fixed the vote so as to get Saudi Arabia onto the UN Human Rights Council! However, political risks arise from the Saudi elite’s economic upbringing. As a friend once remarked to me about the Saudis: ‘when you have too much money and you do not have to work or think for a living, your brain turns to mush’. Whereas Ibn Saud was successful in managing imperial rivalries and pushing aside local opposition to establish his extended family’s state, since his death in 1953 later generations of Saudi rulers have shown increasing signs of mushiness.
Saudi Arabia sees Iran as its main strategic rival, or at least as a potential supporter of Shia populations in the region that have a low economic status in Sunni-run regimes. But there has now been a deal with the US to lift sanctions on Iran, after an agreement with the International Atomic Energy Agency (also known as an arm of the US government). Sanctions could begin to be lifted from as soon as next week. The Saudis (as well as the Israelis) are not happy. This was likely one reason, apart from their general crackdown on Shia dissidents, for them to execute Shia cleric Nimr Al-Nimr on 2 January. They may have hoped to prompt Iran into taking clumsy political moves in response, but Iran was not so stupid. As a sign that the tide may be turning against them, instead all that happened was that Saudi Arabia’s ‘human rights’ record was once again splashed over the world news media. The Saudi apologia that most of the 47 executed were Sunni did not go down well.
The lifting of sanctions on Iran will encourage many western capitalists to get into this big market, and that will drive major power politics on Iran, no matter what the Saudis do. Iran and Russia are, for now, seen as partners by the US in the battle against ISIS, which is one of the biggest sources of trouble for them and other powers. In contrast, although they do not say so publicly, the US knows full well that ISIS has been funded by Saudi and other Gulf citizens. A US State Department cable, dated December 2009 and recently published by Wikileaks, made it clear that ‘donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide’. Saudi Arabia’s alliance with Turkey against Assad in Syria is also not working out. Turkey has been identified as a source of funding and support for ISIS too, while its economy is in trouble and likely to get worse, following Russian sanctions after Turkey’s air force downed one of its jets in November.
Saudi Arabia has been worried about the changing balance of power in the region, but its actions have destabilised things further and are worrying its western allies as well as Russia. For example, the main Saudi political player is Mohammad bin Salman Al Saud. He rejoices in the titles of Deputy Crown Prince, Second Deputy Prime Minister and Defence Minister. In December, the BND, Germany’s foreign intelligence agency, noted that he was ‘prepared to take unprecedented military, financial and political risks to avoid falling behind in regional politics’. This referred to his support for the Al-Nusra Front in Syria and his aggressive military intervention in Yemen. All of this has turned into a never-ending disaster, contrasting with what the report described as ‘the careful diplomatic stance of older members of the Saudi royal family’. MbS, as he likes to be known, is the favourite son of the 80 year old King Salman, who is suffering from dementia, and is now lining himself up to be the future ruler of the Kingdom.
MbS will find that he has less room for manoeuvre than Ibn Saud. There is no sign that the major powers are concerned about Yemen, but they are very closely watching what goes on in Iraq and Syria, although they have little ability to control events there. The forces unleashed could also come back to damage MbS himself, since there is no reason why ISIS would want to exclude its ‘caliphate’ from Mecca, for example.
Saudi Arabia is a creature of imperialism in the Middle East region, one that for a while got lucky, both with the major powers being otherwise engaged or not much concerned, and more so with the discovery of cheap oil reserves. But, despite its wealth, Saudi Arabia has failed to develop its economy and society and instead has contributed to the blood and gore that are the hallmarks of the modern imperialist world.
Tony Norfield, 13 January 2016
 This is not to say that ISIS gets the bulk of its money from Saudi Arabia (or other Gulf states). Most of ISIS money comes from selling oil and extortion, and its weapons have generally been supplied – if only indirectly, in terms of being seized from the ‘moderate’ rebels – by the US, Britain and France.
 There are many different English spellings of the original Arabic terms and different ways of referring to the people involved. I will use what I have found to be the most common spellings, and also to refer to the first ruler of Saudi Arabia as Ibn Saud, rather than the (much) longer Abdulaziz ibn Abdul Rahman ibn Faisal ibn Turki ibn Abdullah ibn Muhammad Al Saud, or other variants. Note that the Arabic term written in English as ‘ibn’, or alternatively ‘bin’, means ‘son of’.
 It should be noted that the Ottomans were relatively liberal regarding religious allegiance. The key point was: pay your taxes and do not cause trouble, and we will leave you alone. Hence, Jews, Christians and others were welcome in the Ottoman establishment, even if they did not have the full rights of (Sunni) Moslems.
 Austria-Hungary had already annexed Bosnia-Herzegovina from the Ottomans in 1908 and Italy had seized Libya after a war in 1912.
 This was a version of Britain’s infamous Balfour Declaration in 1917, one that at a critical stage in World War One offered a big concession to Zionists, while also claiming not to prejudice the rights of non-Jewish people in Palestine. This is not the main topic of the article here, but it is worth noting that the British were past masters at such ambiguity. There were certainly some Zionist British ministers, but also many who did not want to upset their relationships with the Arabs. A previous set of ambiguous commitments that was more in favour of Arab independence from the Ottoman Empire was the Hussein-MacMahon correspondence in 1915-16. A key motive for the Balfour Declaration was to get support from US-based Zionists to strengthen US support for British policy in the war. Far from the Balfour Declaration showing unequivocal British support for establishing the State of Israel, Britain later tried to limit Jewish immigration into Palestine and faced numerous attacks from Zionist forces, including the assassination of Lord Moyne in 1944. A final brief point to note an outrageous non sequitur and extra crime: the Europeans compensated for their slaughter of Jews by aiding the theft of Arab land!
 The British stopped their subsidies of Ibn Saud after a dispute in the mid-1920s, on the dispute with Hussein, but resumed later. This longstanding relationship was enough for the US government initially to consider it a fact of life about which they could do little.
 In case European readers get all superior about the Wahhabis, they should remember that it would be difficult to top the number of murders of Catholics and Protestants in Europe (in the 16th century and after) in the name of Christianity. Religion was, and still often is, a sign of social-political status or allegiance.