Home Political science The colder war
Rattling around the Shaky House of Saud
After World War I, it was clear to all that in warfare oil was as helpful as gunpowder. Having a reliable supply didn't guarantee victory, but not having one guaranteed defeat.
King Abdul Aziz Al Saud, of Saudi Arabia, understood the lesson.
For most of its history, the region now known as Saudi Arabia was the thinly populated home of a patchwork of scattered tribes. The Saudis were minor players. But their base, the Najd region in central Arabia, happened to be where Wahhabism, a reactionary fundamentalist sect of Sunni Islam, arose in the middle of the eighteenth century.
Founded by Muhammad ibn Abd al-Wahhab, Wahhabism was a revivalist movement that adhered strictly to fundamentalist interpretations of the Quran. Abd al-Wahhab preached against the moral decline of the peoples of the Arabian Peninsula and called them to unite under their true religion to gain political strength. He attracted the financial support and local political clout of the House of Muhammad ibn Saud in expanding his influence and in suppressing Shi'ites.
Over the following 150 years, Saudi territory waxed and waned. However, during the first third of the twentieth century, through wars of conquest, Abdul Aziz, then the head of the House of Saud, assembled the Kingdom of Saudi Arabia, proclaimed as such in 1932. The Sauds have been the royal family ever since.
The new kingdom started poor. It may have been blessed by Allah, but the Almighty had not endowed its inhabitants with much knowledge of what was lying beneath their feet. All they knew they had was Mecca. The city is the holiest place in the Islamic world, and every true believer is called to make at least one pilgrimage to it in his or her lifetime.
Pilgrims to Mecca supplied most of the kingdom's income. But the global depression of the 1930s cut the king's revenue by 60 percent. The king needed to find another source of money or risk losing his kingdom.
Abdul Aziz looked to his neighbors and saw the oil wealth in Iran and Iraq. He thought there might be something like it at home. But even if there were, he'd need help getting the oil out of the ground, so he decided to open his land to foreign oil companies.
Exploration in Saudi Arabia began in 1933, when Standard Oil of California (Socal, now Chevron) obtained the first concession. At the time, the Red Line Agreement brokered by Mr. Five Percent was still in effect, so no member of the Turkish Petroleum Company (TPC) was free to negotiate its own deal with the kingdom. But Socal wasn't part of the consortium that made up TPC. It alone bid for the assets and concessions.
Socal walked off with the prize. Oil there was, and in greater abundance than anywhere else on Earth. Winning in Saudi Arabia eventually pushed Socal to the top of the industry.
The first commercial production came online in 1938, at Dhahran. Socal formed a subsidiary, the Arabian American Oil Company (Aramco) in 1944, for its operations in the country. As it turned out, the king had been wise to go outside the existing syndicate. By the time Aramco was founded, the split with the Saudis was 50-50—far better than what Iran got from APOC.
The 50-50 split brought the kingdom a gigantic windfall when, in 1948, Aramco tapped into Ghawar. This area, 174 miles long by 19 miles wide, in east central Saudi Arabia toward Qatar and the Persian Gulf, is by far the largest conventional oil field in the world. It produces over 60 percent of Saudi oil and more than 6 percent of the globe's.
The kingdom keeps per-field production numbers close to its vest, but it is estimated that Ghawar yields 5 million barrels of oil and 2 billion cubic feet of gas per day. Its reserves are immense even if, as is widely believed, they are overstated by Saudi oil officials. Assume they are only half of what the government says. That still translates into 40 years of production at current rates.
Compared with Iraq or Iran, Saudi Arabia is sparsely populated. That meant the gusher of money went into fewer pockets, and the king needed to spend less of it to maintain control. While the population quickly grew, so did production. Saudi Arabia could develop its resources and its country together, harmoniously. Citizens grew rich and had no reason to challenge the Sauds' authority. Nor was there much religious strife, as the kingdom was more than 80 percent Sunni.
The Aramco arrangement continued for almost 30 years, until the 1973 oil crisis prompted the Sauds to begin taking control of the country's petroleum industry. The Sauds moved slowly, engineering a 25 percent takeover in 1973, then 60 percent in 1974, and finally assuming complete ownership in 1980. The company changed its name to Saudi Aramco in 1988, and today it reigns as the largest producer of crude oil in the world. With its massive reserves and complete integration of production, refining, and shipping, Saudi Aramco will be waving a scepter for years to come. And the head of the House of Saud will remain one of the richest and most powerful men alive.
Even so, the Saudis always understood that they were too small to go it alone, so they sought both political and commercial allies.
In 1945 they joined Egypt, Iraq, Lebanon, Syria, and Yemen in the Arab League, an organization dedicated to the "independence and sovereignty ... of the Arab countries." The League has since expanded to 21 members (not counting Syria, which in 2011 was suspended because of Assad's bad manners).
Later, in 1981, Saudi Arabia joined with Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates to form the Cooperation Council for the Arab States of the Gulf. Its purposes include supporting a military organization, the Peninsula Shield Force, to defend against attack on any member state, including attacks by a member's own citizens, such as the 2011 uprising in Bahrain.
In 1960, Saudi Arabia joined with Iran, Iraq, Kuwait, and Venezuela to form the Organization of Petroleum Exporting Countries. Nine other countries would join later. OPEC was conceived as a permanent organization with cartel power to control prices by controlling output.
For its first decade, OPEC had little apparent effect, but in the 1970s it turned the energy world upside down by ending the era of cheap oil. Prices rose sharply on two separate occasions, the Arab embargo in 1973 and the Iranian Revolution in 1979.
The 1973 oil embargo was the Arab world's pushback to the United States and other countries that had resupplied Israel during the October 1973 Yom Kippur War, support that had proven disastrous for Egypt and Syria. While an act of hostility, the embargo gave rise to a convergence of interests that has been of the utmost importance ever since.
The embargo quadrupled the price of oil and reminded the titans of the industrial West of the sharp sword that a handful of small, backward nations held over them. This was particularly true for the United States, which was the country most dependent on imported oil. For the United States, expensive oil was tolerable, but unreliable supply wasn't.
U.S. dependence on foreign oil had grown from 22 percent in 1970 to 36 percent in 1973, and at the time the trend looked irreversible. Unfortunately, much of the world's oil supply was coining from countries that were hostile to the United States, such as Russia, or that were politically unstable, like much of the Middle East (or both). Washington judged that the single most potent guarantor of the reliability of its oil supply would be a Saudi Arabia that was allied with the United States and at peace both internally and with its neighbors.
The puzzle was how to broach an oil deal with a country that had you on its black list. First, obviously, the parties to the Yom Kippur War had to be reconciled. Though a ceasefire had been arranged in October, tensions and mistrust still ran high.
President Richard Nixon and Secretary of State Henry Kissinger saw peace talks between Israel and Egypt and negotiations with Arab OPEC members over the embargo as distinct matters. But they also understood the linkage between them in the minds of Arab leaders. Thus the United States began parallel negotiations with Egypt, Syria, and Israel to accomplish an Israeli pullout from the Sinai and the Golan Heights, and with Saudi Arabia and other oil producers to end the embargo. The First Egyptian-Israeli Disengagement Agreement followed, in January 1974. Though a full peace treaty failed to materialize, the prospect of a real negotiated end to hostilities was enough to convince the relevant OPEC countries to lift the oil embargo two months later.
At the same time, Kissinger was talking separately with the Saudis. They knew they were exposed to their militarily stronger neighbors who coveted Saudi Arabia's vast wealth. And the Soviets might add to the threat, either directly or by sponsoring an invading state.
Sectarian hostility enhanced the danger. Iran was 90 percent Shi'a; Iraq, though for the time being ruled by Sunnis, was 65 percent Shi'a; and next-door Bahrain, small but rich, was 70 percent Shi'a. The Saudis could imagine a war in which Iran or Iraq or the two together with Bahrain would make a grab for their country and do so under the banner of restoring true Islam to the holy places of Arabia.
Saudi Arabia needed a patron. And no major power was likely to stand up, unless...
Protection was what Kissinger came selling. As outlined in Chapter 3, the United States offered to support the House of Saud forever-more and defend the kingdom against external aggressors. (Yes, it would continue to support Israel, too; that was just something the Saudis would have to tolerate.) In return, the Saudis would be the bellwether leading oil traders to the exclusive use of U.S. currency—and would agree to invest any unneeded profits in U.S. Treasury bonds, notes, and bills.
The deal was struck, and soon thereafter, Kuwait signed up for much the same.
Washington was confident that as Saudi Arabia had the biggest voice in OPEC, the other members would follow its lead. In 1975, they all did.
Thus 1974 turned out to be a banner year for the United States. War ended, Israel was preserved, oil again flowed from the Middle East, a solid relationship with Saudi Arabia was forged, and, most important of all, the petrodollar was born.
Where was the Soviet Union in all this? On the other side, of course. The USSR wanted to be seen as a friend to OPEC. It never competed with the cartel for markets, and it helped out with energy technology and infrastructure. During the Yom Kippur War, it aided Egypt and Syria. The Soviets wanted to enhance Western dependence on OPEC and to create the right environment for future cooperation with cartel members. Putin would follow a similar policy by embracing pariahs like post-shah Islamic Iran.
The American/Saudi alliance has underwritten stability in the Arabian Peninsula for a good long while. But it may have reached its "Use by" date.
In its twilight years, the Soviet Union suffered from a succession of weak leaders who kept dying on the job. Brezhnev, Andropov, and Chernenko all succumbed within a span of three years. When President Reagan was informed of Chernenko's passing, he reportedly said, "How am I supposed to get anyplace with the Russians if they keep dying on me?"
This may be just what a U.S. president will soon be saying about the rulers of Saudi Arabia.
The similarities are striking. The USSR in its latter stages was a socially repressed and ethnically divided society living in a resource-rich but economically poor country, led by an ensemble of autocratic old men who kept dying without clear plans for succession. All of this was set smack in the middle of a global battle for power.
Today's Saudi Arabia isn't poor, but it is headed for economic trouble. Rapid increases in social spending and in domestic fuel consumption are chewing up the kingdom's all-important oil revenues, which have not exactly been equitably distributed. The money has made average citizens comfortable, yes, but it has left them looking up at a ruling class thickly populated by millionaires and billionaires.
While the House of Saud might present itself as a stable, strong, and cohesive royal family, in truth the king and his successors are growing old and incapable in a throne room crowded with contenders. Meanwhile, the Islamists—the only other organized social group in the country—are waiting outside the door.
The present King of Saudi Arabia, Abdullah Aziz bin Saud, turned 90 years old in August 2014. Under Saudi Arabia's rules of succession, upon the king's death the throne passes not from father to son but from brother to brother. And brothers, ipso facto, tend to be of similar age. Predictably, none of King Abdullah's brothers is exactly young and vigorous and ready to tackle the problems of a medieval country trying to hold things together in a digital world.
Crown Prince Salman bin Abdulaziz Al Saud, the putative next in line to the throne, is already 78 and was drawn to the top only by the death of his two elder brothers. The average age of the surviving brothers, including the king, is now over 80 years.
This is not to say it's a done deal that Salman will succeed to the throne (if in fact he even survives the king). The Saud family is rich in princes, 7,000 of them, the fruit of multiple wives and unlimited family budgets. Among this royal battalion, there undoubtedly is someone with the right mix of youth, clear-headedness, and piety to lead Saudi Arabia through the troubles of succession and into the future. But how would he rise to the top?
Whenever a throne room is crowded with would-be successors, it's easy for a brawl to break out, which favors the most ruthless over the best qualified. The chance that Prince Right will emerge the winner is remote. More likely is a combative individual filled with resentment of the West and spoiling for war with Shi'ites.
The United States doesn't want this (and might not tolerate it). It would prefer to let a string of relatively docile old men each take his turn as king, which means one ruler after another in his seventies or eighties, men who are unlikely to rock the boat.
But they will also lack the energy or even the time to enact significant reforms. And reforms are needed. Here's a short list of the endemic problems that are battering the world's premier oil producer: high unemployment, a corrupt bureaucracy, a nothing-but-oil economy, a weak education system, and a generation of frustrated youth.
While the country creaks under the strain of those problems, the three pillars that have supported the royal family are weakening. The oil revenue long used to buy public contentment is falling behind the public's perception of what it deserves to be given. The Wahhabi Islamic establishment—which has been allied with the House of Saud from the beginning—has become quarrelsome and is losing public credibility. And the royal family itself is struggling to maintain its fagade of infrangible solidity.
Whereas the regime once controlled the population by controlling access to information, that age is now almost over. The Internet has connected young Saudis with the rest of the world. What they see is prompting questions about their society, and they are beginning to make their own decisions.
Even the religious establishment is losing its strength. Increasingly, young Saudis are turning to the Quran for guidance rather than following the decrees of any religious leader. It's like a Protestant Reformation in the desert.
This is not exactly the kind of boil manageable by octogenarians taking turns.
Thus, unsurprisingly, when the Arab Spring broke out in Tunisia and Egypt, the spirit of protest leaked into Saudi Arabia. Few of the protesters were demanding democracy. Nor were they trying to oust the royal family. No, the young Saudis who took to the streets had more practical demands.
At the top of the list was jobs. Despite the preponderance of elders at the top of government and an average life expectancy of 75 years, high birth rates have kept the country as a whole astoundingly young on average. Sixty percent of Saudi citizens are under age 20. But among young adults, the unemployment rate is nearly 40 percent. These young people want the opportunity to better their lot, but they can't find work and so default to living on government handouts.
Those handouts have been shrinking. Saudi Arabia's population has grown 380 percent in the past 40 years, far faster than oil production. So there are fewer dollars per head every year.
The short-term fix has been redistribution, the only thing those old guys in the House of Saud really know how to do. So in the wake of the Arab Spring, King Abdullah drowned protestors in money, a $130 billion spending package for new housing, bigger payrolls, and fatter unemployment payouts. It was quite a windfall. Saudi Arabia's entire annual budget is just $180 billion, so the king almost doubled spending to appease the protestors.
The tactic cannot work forever. Even in Saudi Arabia, there is only so much oil money. The Saudi royals already need an oil price of at least $80 per barrel to support all their social programs, and with domestic oil consumption rocketing upward, that baseline price will keep climbing.
And the unrest continues.
After King Abdullah offered his billions of dollars in social spending, many protestors went home—except in the country's oil-rich eastern provinces, where the protests never stopped.
Since the Arab Spring, Shi'ite Saudis in the eastern Qatif region have been demonstrating regularly, demanding the release of all political prisoners, freedom of expression, and an end to ethnic and religious discrimination. When Saudi security forces turned on the demonstrators in November 2011, killing five, the protests took on a distinctly anti-Saud tone. A popular banner read: "For 100 years we have lived in fear, injustice, and intimidation."
In response to long discrimination against Shi'ites, the Eastern Province Movement has been calling for the establishment of a constitutional monarchy. While this is a reasonable enough demand by Western standards, in Saudi Arabia it constitutes treason.
And that's from the older, more cautious elements of the population. Among the young, many advocate the overthrow of the Sauds.
In June 2012, King Abdullah ordered the country's security forces to a state of high alert due to a "turbulent situation" in the eastern region. Demonstrations are illegal in Saudi Arabia, so anti-riot units deployed armored vehicles in downtown Qatif. The government accused Iranian Shi'ites of stirring up dissent. In late 2012, the government required all mobile phone users to register their subscriber identification module (SIM) cards, which means text messaging about demonstrations is no longer anonymous.
Confrontations are growing more violent. Dozens have been killed over the past four years. In February 2014, Saudi security forces attacked anti-regime protestors in the town of Awamiyah in the Qatif region of the Eastern Province and used live fire.
A Saudi court sentenced seven people to prison for up to 20 years for taking part in the Qatif protests and for tossing petrol bombs at security forces.
Thousands took to the streets to mourn those killed in Qatif, and the funeral procession quickly turned into yet another demonstration. Activists say there are more than 30,000 political prisoners in Saudi Arabia and demand their release.
The Eastern Shi'a are well positioned to sabotage the area's oil fields, if they so choose. But they are not the only threat to the monarchy. Al-Qaeda in the Arabian Peninsula (AQAP), the product of a January 2009 merger of Yemeni and Saudi al-Qaeda branches, is committed to toppling the king. Operatives work throughout the country and do so with support from tribal leaders. Bringing down the House of Saud would be a pivotal victory for al-Qaeda and would destabilize the entire region.
All told, external threats, internal divisions, and domestic struggles leave the Saudi royal family's hold on power tenuous. And that makes its recent differences with the United States all the more troubling.
It's no secret that the Saudis are unhappy with President Obama's foreign policy. Because they supply the United States with oil and park their money in U.S. Treasuries, they believe the United States should fight their battles for them. And it isn't doing that.
Prince Bandar bin Sultan—director of the Saudi Intelligence Agency from mid-2012 to early 2014 and the Saudi ambassador to Washington for 22 years before that—has shown European diplomats a long list of grievances. The United States, in the Saudi view, has failed to support the Sunni rebels fighting Syrian President Bashar al-Assad; has done too little to help the Sunni Palestinians deal with Israel; is growing too close to Shi'ite Tehran; and failed to support the Saudis when they crushed the 2011 anti-government revolt in Bahrain.
The relatively young, 65-year-old Bandar is among the most hawkish of Saudi princes. He once offered to pay all of Washington's costs for intervening in Syria and has threatened Putin with terror attacks if Russia doesn't abandon Assad. He now maintains that the kingdom will make a "major shift" in relations with the United States. It's not known whether he reflects the views of King Abdullah, with whom he has fallen out in the past, or whether he might have personal designs on the throne.
Another former director of the Saudi Intelligence Agency and member of the royal family, Prince Turki al-Faisal, in late 2013 accused Obama of "dithering" on Syria and Israeli-Palestinian peace. Calling the president's Syria policy "lamentable," Prince Turki went on to say: "The current charade of international control over Bashar's chemical arsenal would be funny if it were not so blatantly perfidious, and designed not only to give Mr. Obama an opportunity to back down [from military strikes], but also to help Assad to butcher his people."
These are remarkably harsh words from someone so highly placed.
It may seem unlikely that Saudi Arabia would distance itself from its longtime patron; it's still beholden to the United States for military support. In addition, the bulk of its $700 billion worth of foreign reserves remains in dollars. But there are limits to the disrespect the Saudis will tolerate. Primarily because of U.S. inaction on Syria, "All options are on the table now, and for sure there will be some impact," a member of the royal family said.
So what would happen if, for whatever reason, the shaky House of Saud actually did crumble?
Apart from the monarchy, religion is Saudi Arabia's only source of social structure. There are no political parties, no unions, and no social organizations aside from a few charities run by members of the royal family. Were the Sauds to fall, the only players ready to step into the vacuum would be the Islamists.
The shift to the Muslim Brotherhood was unnerving to much of Egypt, but that was nothing compared to what would happen in Saudi Arabia. Islamist leadership on the peninsula would not be the tepid variety that came to Egypt. Saudi Islamists, as noted, are Wahhabi Muslims, practitioners of the strictest and most reactionary strain of the religion; they are Osama bin Laden's coreligionists.
The Sauds are nominally Wahhabi, and they enforce its stringent code on their people. But for eight decades they've been living in the lap of luxury. Despite the support they give Syrian rebels and their intervention in Bahrain, they have, by the standards of their more radical brethren, gone soft.
Were the Sauds to fall and the radical Islamists to inherit the government, peace with the neighboring Shi'a Islamic Republic of Iran would be unlikely. There is a shooting war everywhere the two sects meet. Both branches of the faith believe the other has strayed so far from the path that its followers are infidels. Odds of open warfare between Saudi Arabia and Iran would go sky-high the moment Islamists prevailed in Riyadh. And that would have unpredictable but obviously dire consequences for the region and would threaten the entire world with a calamitous loss of oil supplies.
Even worse—at least from the American point of view—a Wahhabi Islamist Saudi Arabia might attack the devils of the West by shutting off the oil taps completely. It would be the 1973 oil crisis all over again, but in an even more oil-dependent world. The price of oil shot up 300 percent in 1973; you can imagine what it would do today. Even if there were merely an equivalent hike, we'd be looking at over $300 a barrel.
The end of the era of friendly U.S.-Saudi relations would be bad enough in itself. The kingdom has been a partner of the United States for a long time. It has helped stabilize the Middle East and has kept the other OPEC countries in line.
But the real calamity would be the demise of the petrodollar.
If Saudi Arabia turns away from the West—whether because of internal conflicts or because of a rupture with the United States—who is it likely to turn to? One certain suitor is Putin's Russia, which would come with an offer to set up a ruble/rial trade system. China would probably show up with a proposal to use the yuan. And who knows who else?
Like it or not, the petrodollar is moving into its twilight. For more than 40 years, Saudi Arabia has been its de facto sponsor. When that sponsorship ends, the end of the petrodollar will quickly follow.
Let's look at the consequences in greater detail.
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