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 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 impact 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
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