August 8, 2005

Saudis face troubled future

Posted in International Economy ·
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Armenians were the first Christians. In the third century the country officially declared itself Christian. Despite a deep and violent schism between Eastern (Orthodox) and Western (Catholic) Christianity in the 11th century,many of our present-day religious rituals and holy days are Armenian in origin.

One of the most symbolic Armenian rites was to locate all churches on the site of a freshwater well, and this tradition continues in Catholic countries of the Mediterranean. Water was the symbol of life, and by linking the church with water, religious leaders reiterated the central, powerful position of the church.

This placed the church at the heart of community life not only spiritually but commercially. For close to 2,000 years, water was the world’s most valuable commodity places with water blossomed, places without water died.

Today, oil is the new water. As in the ancient church, he who controls oil puts himself at the centre of the global economy. Sometimes we fail to appreciate the enormous power of oil. It is crucial to everything we take for granted. Modern life is based on oil, and after the humanmind, oil is the world’s primary resource.This makes Saudi Arabia the world’s oil well a prized asset.

Last week, the man who ruled the country for 23 years died, causing the price of oil to move above $62 a barrel. Over the coming years, the future of the global economy will be increasingly tied up with the fortunes of this secretive kingdom, its royal family and its extreme form of Islam.

The new ruler, King Abdullah Azziz, and the other ruling senior princes are worried.To the north, in Iraq, a government dominated by Shia Muslims is emerging chaotically. To the north-west, in Syria, a friendly government is being vilified for its continued meddling in Lebanon.

At home, two historic rounds of municipal elections indicate that some ordinary Saudis quite like democracy, though others are thought still to prefer a theocracy led by Osama bin Laden.To compound it all, the price of oil is too high for Saudi taste, and looks like going higher.

There is one unifying feature of all these events: the Saudis have little ability to control them. This is what really worries the senior princes and what they discuss late at night as their cronies and relatives slump in the sumptuous cushions around them.

When we think of Saudi Arabia we always look at it from our western perspective, which amounts to little more than �they have oil, keep them sweet’. For us, Saudi Arabia is oil and oil is Saudi Arabia.

The Saudi perspective on Saudi Arabia is notably different: oil is a blessing, rather than the kingdom’s sole reason for existing.

The Saudi leadership’s role in the Arab world, and a similar role in the Islamic world, are the crucial indicators, as seen from the vantage point of Riyadh.

Despite so-called Arab unity, leadership of the fractious Arab world can be a tiresome burden, especially when most countries seem to want Saudi cash in return for any support they provide.

And leadership in the Islamic world is bound up with Saudi Arabia’s custodianship of the two holy cities of Islam, Mecca and Medina.

Managing these centres of Islam and the pilgrimages to them is crucial to the legitimacy that is conferred on the Saudi royal family in return.

So the Saudi/Arab/Islamic view of Saudi Arabia is considerably different and more complex than the western image of the place. As a result, the next generation of Saudi leaders has its work cut out. Because all the main ruling princes are well into their seventies and eighties, even this week’s smooth transition sheds little light on the longer term. Meanwhile, the challenges are becoming more problematic and the pressures more acute.

In terms of foreign policy, from a Saudi perspective the Cold War was a golden era. The United States gave security guarantees in return for a friendly oil-exporting policy. Communism was the enemy; Islam was the protection from both Moscow and unwanted American interference.

The collapse of the SovietUnion, and, more recently, the disastrous US occupation of Iraq, are, to Riyadh, unwelcome trends. In the good old days, Saudi Arabia preserved its Islamic legitimacy at home by indulging the religious establishment and its strict Wahabi version of Islam.

Youths imbued with Islamic fanaticism could be exported to Afghanistan, Bosnia or Chechnya. Those that returned and did not want to settle down to normal lives could be recruited into the religious police.

This template for domestic stability collapsed after September 11, 2001. Regionally, Riyadh dominated the Gulf Cooperation Council that formed a bloc against the twin Persian Gulf threats of Iran and Iraq. Further afield, the Saudis could support both the Syrians and the Arafat-led Palestinians against Israel, while also telling Washington that Riyadh was really working for Middle East peace.

Post-Afghanistan, post-Iraq, post-Arafat, Saudi Arabia does not feel comfortable. Washington seems intent on allow-ing the growth of a Shia Muslim belt to the north, implicitly threatening the Sunni kingdom’s leadership role in Islam.

Closer to home, the Gulf states no longer accept Saudi leadership. Abu Dhabi, the lead emirate of the UAE, has reopened a vexatious oil-related border dispute. Other states,most notably Kuwait and Qatar, have developed their own direct links to Washington.

And on the Israeli-Palestinian dispute, the Americans, to quote US president George Bush, are demanding that �Arab states establish normal ties with Israel� a prospect that gives Riyadh heartburn. In reality, the Saudis are not even beginning to try to sell the notion to their domestic or wider Islamic constituencies.

Of course, $60 per barrel for oil means there are no short-term revenue problems, but this price level is accelerating the emergence of alternative technologies, which is another nightmare for the Saudis.

They want stable prices that keep the rest of us addicted to their oil, rather than high prices that cause us to explore other energy options. However, surging demand from China means that they have to pump out more oil than ever just to keep prices where they are.

All this is compounded by the uncomfortable but nagging reminder that at some stage in the next generation, oil will begin to run out.

It is clear that the world economy needs a stable Saudi Arabia more than ever but far from clear whether Saudi Arabia’s next generation of leaders will be able to deliver this.

Like the ancient Armenians whose Christian star shone brightly, then dimmed and can now be only faintly discerned in intricate religious ritual, the golden age of Saudi Arabia may be coming to a close.


  1. Stephen

    David,

    I would like to see you explore the question of future
    civilisations without oil. There may be alternative
    energies to push a small car down the street, but there is
    at present no alternative that will move a fully loaded
    heavy goods vehicle or that will get a 747 off the ground,
    or get satelites into space….

    The next generation will be faced with the first real
    reversion of civilisation to a simpler, poorer, more
    localised and more precarious existance.

    I would love to see how it works out, but I would not like
    to have to live through it

    Best wishes,

    Stephen

  2. Pat McCarten

    People are barely blinking as oil has jumped from $57 to $64
    over the past few days.

    It only seems like yesterday that $35 oil was the critical
    level and prices above $40 ‘could not be sustained for long
    before settling in a $30-$35 per barrel range’ according to BP.

    It seems that its not only oil that has enjoyed this huge
    price hike – the price of most US stocks and houses has
    exploded during the past few months of June and July.

    Is this a co-incidence?

    I hear dispite the oil price sales of gas gussling monster
    trucks like the Ford F150 pickup are now near all time highs
    in the US with one sold every second.

    I have to wonder what world forecasters like Pimco’s Bill
    Gross and the bond market are in, still betting on a
    deflationary recession!

  3. Nitram

    Here are the facts. “Global oil (production) is 84 million
    barrels (a day). I don’t believe you can get it any more
    than 84 million barrels. I don’t care what (Saudi Crown
    Prince) Abdullah, (Russian Premier Vladimir) Putin or
    anybody else says about oil reserves or production. I
    think they are on decline in the biggest oil fields in the
    world today and I know what’s it like once you turn the
    corner and start declining, it’s a tread mill that you
    just can’t keep up with.

    “So, when you start adding the reserves in these
    countries, you’re not even replacing what you’re taking
    out.

    “Let me take you to another situation quickly. 84 million
    barrels a day times 365 days is 30 billion barrels of oil
    a year that we’re depleting. All of the world’s (oil)
    industry doesn’t even come close to replacing 30 billion
    barrels of oil. We don’t spend enough money to even give
    ourselves a chance to replace 30 billion barrels. It may
    be because the prospects are not there. I rather imagine
    that’s what the answer is to that.

    “So, if you accept that 84 million barrels a day is all
    the world can (produce), and then look at refining
    capacity, I think it’s just a coincidence that refining
    capacity… world capacity… is 84 million barrels a day.
    So, we’re in balance: 84, 84. It appears that Production
    of oil is at its peak. and will decline in the coming
    years, this has grave implications for an irelands
    economy.

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