The Saudi problem: ignore the press reports. If the goal is stability, Saudi Arabia is becoming more stable today than in years past - Brief Article

International Economy, The, Nov-Dec, 2001 by J. Robinson West

The American public has recently been served up a stream of articles about strains in the U.S. relationship with Saudi Arabia and the imminent demise of the Saudi royal family. Americans are troubled by repons of violent opposition, as well as the fact that many of Osama bin Laden's terrorists were born in Saudi Arabia, and funded from there. The impression has been created that America is bearing the consequences of Saudi incompetence, corruption, and inaction. This picture is outdated and complicates U.S.-Saudi relations.

Close U.S.-Saudi relations are a keystone of U.S. Middle East policy. The two countries enjoy a long-standing strategic alliance, founded on a simple exchange: Saudi Arabia would provide an uninterrupted flow of oil to the United States, which in return would insure regional security, guaranteeing that Saudi resources would not fall prey to hungry predators. Since the alliance was formed by President Roosevelt and King Abdul Aziz near the end of World War II, differences of opinion have occurred from time to time, but the underlying foundation remained solid.

The kingdom does have serious economic and political problems. Sentiment on the ground is certainly more charged than before September 11th. But this is a long way from concluding that Saudi Arabia is an unreliable partner, or that the royal family's days are numbered. The kingdom has begun to put internal and external policies in place in recent years to stabilize the situation they now face. Media reports partly reflect frustration in Washington political circles with Saudi Arabia's hesitant cooperation in the U.S.-led war on terrorism. In actual fact, the kingdom has provided cooperation, albeit not as publicly as the Bush administration might have liked. And its most important contribution has been on the oil side, cajoling OPEC into accepting lower prices immediately after September 11th.

Oil is crucial to U.S. Saudi ties, as well as internal Saudi politics. Oil revenues represent 82 percent of the government's revenue. Low revenues from oil or excessive corruption generate internal dissent, flamed by a sense of regional discrimination within the Kingdom and gross income inequalities between the ruling family and most of the population. The stationing of U.S. troops in the Kingdom and Washington's failures to deal with the Israeli-Palestinian conflict and Iraq, to name but two regional issues, have only added fuel to the domestic fire, exacerbating anti-American sentiment.

The Saudi ruling family has faced these problems since the early 1990's. Just after the Gulf War, the Saudi government had to deal with riots in its heart-land. It also faced petitions from religious activists demanding more say in government. Charges of corruption within the Royal family were rife, and opposition groups fed off these reports.

Meanwhile, low oil prices in the mid-1990's, the heavy burden of the Gulf War, and more U.S. arms purchases (nearly $65 billion from 1990 to 1996) brought the Kingdom close to bankruptcy. And to top it off, King Fahd suffered a stroke and set off an intense succession struggle among the top princes.

Although more are needed, the House of Saud has made some fundamental policy changes to mitigate these pressures, particularly since Crown Prince Abdullah took over day-to-day power in the mid- 1990's. Decisions are made collectively in councils of the family, so Abdullah cannot move decisively or publicly. His fundamental strategy was to shift his focus from external invasion threats to internal threats such as religious and political instability. In the process, he began to distance himself from the United States.

Internally, Abdullah cut budget expenditures--especially wasteful military spending often tied to corruption--to bring it more in line with oil revenues. Saudi Arabia has had a balanced budget every year since 1996 except in 1998 when oil prices crashed. Foreign assets have been rebuilt. Abdullah also reduced corruption, making very senior princes cut back on their commissions and pay their way; and he introduced a set of reforms to boost the ailing economy, including moves to open up the energy sector to foreign investment.

Equally significantly, Abdullah reoriented Saudi Arabia's foreign policy by building a set of alliances, most notably with Iran, that secured the Kingdom's regional security without relying overwhelmingly on U.S. protection. U.S. relations remain critical--but Saudi Arabia now has a broader base in the region for its defense.

Aspects of Saudi society and the Royal family are distasteful to many Americans. Further reform is needed. But certain steps have been taken to make the Kingdom more stable than it was a few years ago. It may not seem to be as warm an ally, but stability is in the long-term interest of the United States.

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J. Robinson West is a Former Assistant Secretary of the Interior, and currently Chairman of the Petroleum Finance Co., strategic advisors in global energy.