The Saudi family is engaged in a struggle to overhaul their notoriously pragmatic if autocratic regime.
Younger, foreign [many American] educated members of the farflung family recognize that The Shale Revolution has changed the whole nature of the world energy market. They recognize that despite opposition from enviromentalists and lack of technology in some countries, the exploitation of shale oil and gas deposits widely distributed around the world is going to continue to produce fossil fuel surpluses. That may even be the case if the world economy and consumoption take an upturn from the near-recession conditions in Europe and China reverse.
America is again emerging as a gas and oil exporter to challenge the longtime hold of the Saudis as the arbiter of world prices. Pres. Barack Obama’s “deal” with the Iranians, whether successful or not, for ending their pursuit of weapons of mass destruction, has begun to lifted sanctions against the Tehran mullahs. And Iran is slowly moving back into world markets with its reserves, among the largest in the world. Other smaller producers are emerging in West Africa and throughout Asia and Latin America. To some extent they will compensate in the world market for any temporary blocs against Libyan, Syrian or other Mideast producers.
Thirty-year-old Mohammed bin Salman, the deputy crown prince and the king’s favorite son is leading the charge for a radical departure from the norm. Saudi policy in the post-World War II era, after securing a tacit alliance with Pres. Franklin D. Roosevelt, has been preservation of the status quo. As the guardians of the Moslem holy shrines in Mecca, they have had disproportionate influence not only on their fellow Arabs but throughout the Moslem world. [One of the religious duties of all Moslems is to make at least once in a lifetime to these shrines.]
Bin Salman recognizes that the kingdom’s public finances are unsustainable and unlikely to rebound in a future oil market . He wants to radically change all that with. “Vision 2030”. The plan aims to slash wasteful government spending, develop a non-oil economy and wean the population off its total dependency on cradle to grave benefits. It also aims to boost private sector investment and job creation. Khalid al-Falih, the new chairman of state-owned oil company Aramco, recognizes that he is unlikely to hold the central role in 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 their oil-rich neighbors who have moved away from crude oil. Abu Dhabi, much wealthier on a per capita than Saudi Arabia, has struggled to do so. But fellow emirate Dubai has engineered a transformation over the past 40 years that has weaned it almost entirely off oil, which once contributed 50 per cent of its GDP.
The planned changes will be extremely difficult to execute. Public wages are to be reduced as a proportion of the budget to 40 per cent by 2020 from the current 45 per cent currently, a goal that could increase public opposition given expectations of rising inflation. It would mean a decrease in total salaries from Sar480 billion to Sar456 billion by 2020, with two-thirds of Saudi workers state-employed.
Other equally difficult targets include raising non-oil revenues to Sar530 billion from Sar163.5 billion last year by 2020 through an increase in government fees and taxes, including a sales tax, income taxes on non-Saudi residents and “sin taxes” on harmful products such as tobacco. The Saudis aim to balance the budget by 2020, with debt rising to 30 per cent of GDP by 2020 from 7.7 per cent currently. But the IMF forecasts a budget deficit of 14 per cent this year.
All this is to be accomplished while the Saudis continue to try to mobilize their fellow Arabs – with American support – against the continuing threat of Daesh [ISIS or ISIL], terrorists in Syri and Iraq threatening its neighbors. Crossing the Sunni-Shia, these Saudi enemies will try to exploit the traditional unrest among Saudi Arabia’s Shia minority in the critical southeastern oilfields.
No Middle East phenomenon matches the long-time outcome of these events in Saudi Arabia.