Saudi Arabia begins to overhaul autocracy

OPINION:

Forever is a long time, but it doesn’t last forever, not even in the Middle East. The Saudis are taking the first baby stops to overhaul their notoriously autocratic regime.

Younger members of the royal family, many educated abroad (some of them in the United States) recognize that the shale revolution has changed the nature of the world energy market. Despite resistance from environmentalists and the absence of modern technology in some countries, the exploitation of shale oil and gas deposits, which are widely distributed around the world, is contributing to surpluses of fossil fuel.

America is emerging as a gas and oil exporter again, to challenge Saudi Arabia as the arbiter of the price of oil. Barack Obama’s nuclear deal with the Iranians, successful or not from the point of view of the West, has begun to lift sanctions against the mullahs in Tehran and Iran is slowly returning to world oil markets with its reserves, among the largest in the world. Other smaller producers are emerging in West Africa and Asia and Latin America. They can help resist obstacles thrown up by Libyan, Syrian or other Middle East producers to keep prices high.

Mohammed bin Salman, the 30-year-old deputy crown prince and the king’s favorite son, is leading the charge for the new normal. Saudi policy after the World War II era has been preservation of the status quo. As the guardians of the Muslim holy shrines in Mecca, the Saudis have had disproportionate influence not only in Arabia but throughout the Islamic world. Muslims must make a trip to Mecca at least once in a lifetime.

Bin Salman recognizes that the kingdom’s public finances are unsustainable, and there’s unlikely to be a rebound of oil prices to the old level. The prince wants to change all that with something called “Vision 2030.” This is the plan to slash government spending, develop an economy based on something beside oil, and wean the Saudis from dependency on cradle-to-grave benefits. Khalid al-Falih, the new chairman of state-owned oil company Aramco, recognizes that Saudi Arabia can no longer control the Organization of Petroleum Exporting Countries (OPEC), that in the past dictated world oil prices.

The Saudis are late in following in the footsteps of oil-rich neighbors who have moved away from crude oil. Abu Dhabi, much wealthier on a per capita than Saudi Arabia, has struggled with some success to do that. Dubai, where oil was once half of the GDP, has engineered a transformation over the past 40 years that makes its economy no longer dependent on oil.

Nevertheless, changes in Saudi Arabia will be difficult. Public wages are to be reduced to 40 percent of the national budget by 2020, down from 45 percent. This might spur troublesome public opposition, given expectations of rising inflation. Government fees and taxes, including a sales tax, income taxes on non-Saudi residents and “sin taxes” on harmful products like tobacco, are coming. The Saudis aim to balance the budget by 2020, with debt rising to 30 percent of GDP from 7.7 per cent by the year 2020. The IMF forecasts a budget deficit of 14 percent this year.

All this is to be accomplished while the Saudis continue to try to mobilize their fellow Arabs, with American support, against the threat of the Islamic State, or ISIS, and terrorists in Syria and Iraq. These Saudi enemies will try to exploit the traditional unrest among Saudi Arabia’s Shia minority in the critical oil fields of southeastern Saudi Arabia. The future, like the present and the past, is always difficult in the Middle East.