The Two Faces of Saudi Arabia - Market Horizons - Brief Article

Chief Executive, The, Dec, 2001 by Stephen Richter

Oil is a key ingredient in the process of globalization, and that means so is Saudi Arabia, the world's top producer. But the Middle East linchpin faces a challenge as it tries to reconcile two extremes: conservative Islamic principles and capitalist world trade tenets.

Keeping oil prices stable--at around $25 a barrel-is crucial to stopping the world from sliding into a prolonged recession. A spike in oil prices would have a devastating effect. Higher prices would hamper growth, spark fears of inflation, and crush the confidence of consumers who are already cutting spending. Businesses in all sectors could face a serious deterioration in prospects.

Oil is also important to global transportation. Fifty-seven percent of boats, airlines, cars, and other forms of world transportation were powered by oil in 1998-up from 42 percent in 1993. Cheap transportation boosts trade and allows people to travel more often and farther from their homes than their grandparents would have imagined. This lets them interact with and learn from foreign cultures and countries.

The fact that oil matters so much to the world makes it a big surprise- and a supreme irony-that Saudi Arabia, the globe's largest financial beneficiary of exported oil, remains opposed to any meaningful form of integration with the rest of the world.

The ruling Saudi elite opposes political globalization because they fear it will bring the menace of more democracy and an open society. Such ideas do not fare well in a country that has no elections and where the king can appoint his ministers--that is, his family members--to any position he pleases.

For the average Saudi, the potential loss of political power is not a big concern--he doesn't have much. The general populace mainly views cultural globalization as a threat to their faith with a potential to undermine their morals. Many Saudis reduce "globalization" to a distorted aggregate of alcohol imports, online gambling, and promiscuity.

This attitude suits the autocratic regime fine, and translates into a broad popular resistance to outside influences. While oil pushes the Kingdom's doors open, such resistance immediately closes them.

The House of Saud's stance toward the Information Age reflects the Wahhabi strain of Islam, a strict, fundamentalist interpretation dating from the mid-l8th century. Its conservative mores forbid most citizens from owning satellite dishes or maintaining Internet connections. When such technologies are allowed, their broadcasts have to conform to strict censorship laws.

Saudi Arabia's Wahhabi practitioners and hard-line clerics have much in common with Afghanistan's Taliban, another group especially suspicious of the outside world. And Saudi's rulers will try to muddle through the fallout of the U.S. campaign against Taliban targets by sticking to their current strategy: Do business with the world while rejecting influences that might upset the status quo.

Regardless of the desires of its radically conservative Imam leaders, Saudi Arabia is an instrumental factor in global integration. It accounts for one-quarter of the world's oil reserves, and 11 percent of all production. Its $50 billion in petroleum exports accounts for 90 percent of the country's exports. Oil is responsible for 32 percent of the Kingdom's GDP--and 75 percent of government revenue.

That underscores just how potentially destabilizing Saudi dominance of global oil production really is. Without Saudi oil, seemingly unrelated things like Chinese trade with Argentina or Canadian tourist travel to Finland, would be more expensive, less common, and would make the world less integrated.

The Saudis must decide whether doing business with the world, and thus both supporting and depending on globalization, fits with their goals. They cannot benefit from the economic side of globalization, but reject everything else that comes with it.

The Saudi government, which encourages its people to adhere to the strict Wahhabi views, is playing a dangerous game. Shoring up its religious credentials may enable the royal family to hide its often corrupt and incompetent rule. But it also may provoke a domestic backlash that could destabilize the country and put a large supply of the world's energy at risk.